International Flavors & Fragrances(IFF) - 2024 Q1 - Quarterly Report

PART I - Financial Information Financial Statements This section presents the unaudited Consolidated Financial Statements for Q1 2024 and 2023, covering key financial statements and notes Consolidated Statements of Income (Loss) (Unaudited) | (AMOUNTS IN MILLIONS EXCEPT PER SHARE AMOUNTS) | 2024 | 2023 | | :--- | :--- | :--- | | Net sales | $ 2,899 | $ 3,027 | | Gross profit | $ 1,024 | $ 964 | | Operating profit | $ 199 | $ 131 | | Income before taxes | $ 115 | $ 14 | | Net income (loss) | $ 61 | $ (8) | | Net income (loss) attributable to IFF shareholders | $ 60 | $ (9) | | Net income (loss) per share - diluted | $ 0.23 | $ (0.04) | Consolidated Balance Sheets Highlights (Unaudited) | (DOLLARS IN MILLIONS) | March 31, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Total Current Assets | $ 6,407 | $ 6,293 | | Total Assets | $ 30,642 | $ 30,978 | | Total Current Liabilities | $ 3,820 | $ 3,758 | | Long-term debt | $ 9,150 | $ 9,186 | | Total Shareholders' Equity | $ 14,326 | $ 14,642 | | Total Liabilities and Shareholders' Equity | $ 30,642 | $ 30,978 | Consolidated Statements of Cash Flows (Unaudited) | (DOLLARS IN MILLIONS) | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :--- | :--- | :--- | | Net cash provided by operating activities | $ 99 | $ 127 | | Net cash used in investing activities | $ (78) | $ (167) | | Net cash provided by financing activities | $ 40 | $ 78 | | Net change in cash, cash equivalents and restricted cash | $ 36 | $ 65 | Note 1. Nature of Operations and Summary of Significant Accounting Policies This note outlines IFF's business, confirms U.S. GAAP, details a Q1 2023 interest expense correction, and covers cash and receivables - IFF is a leading creator and manufacturer of food, beverage, health & biosciences, scent and pharma solutions[16] - In Q1 2024, the company revised its Q1 2023 financials, adjusting Interest expense to $100 million (from $111 million) and Other expense, net to $17 million (from $6 million) due to adjustments related to cash pooling arrangements[19] - The company sold approximately $406 million of receivables under factoring agreements in the three months ended March 31, 2024, with associated costs of $6 million[23] Note 3. Business Divestitures Details significant portfolio changes, including the agreement to sell Pharma Solutions and the completed Cosmetic Ingredients divestiture - On March 19, 2024, the company entered into an agreement to sell its Pharma Solutions business for a value of up to $2.85 billion, with the transaction expected to close in Q2 2025[36] - The divestiture of the Cosmetic Ingredients business was completed on April 2, 2024, yielding gross cash proceeds of approximately $841 million[37] Note 4. Restructuring and Other Charges Reports total restructuring charges of $3 million for Q1 2024, a significant decrease from $52 million in Q1 2023 Restructuring and Other Charges by Quarter | (DOLLARS IN MILLIONS) | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Total Restructuring and other charges | $ 3 | $ 52 | Note 6. Segment Information Provides a breakdown of net sales and Segment Adjusted Operating EBITDA for the four segments, with Nourish leading sales Net Sales by Segment (Q1) | (DOLLARS IN MILLIONS) | 2024 | 2023 | | :--- | :--- | :--- | | Nourish | $ 1,496 | $ 1,653 | | Health & Biosciences | $ 531 | $ 513 | | Scent | $ 645 | $ 608 | | Pharma Solutions | $ 227 | $ 253 | | Consolidated | $ 2,899 | $ 3,027 | Segment Adjusted Operating EBITDA (Q1) | (DOLLARS IN MILLIONS) | 2024 | 2023 | | :--- | :--- | :--- | | Nourish | $ 216 | $ 208 | | Health & Biosciences | $ 159 | $ 131 | | Scent | $ 157 | $ 105 | | Pharma Solutions | $ 46 | $ 59 | | Total | $ 578 | $ 503 | Note 13. Debt Details the company's debt composition, totaling $10.3 billion, and recent repayments including a $270 million Term Loan and €500 million Euro Notes - Total debt was $10.3 billion as of March 31, 2024, compared to $10.1 billion at year-end 2023[69] - In Q1 2024, the company repaid a $270 million Term Loan and €500 million in Euro Notes at maturity[74] - In April 2024, the company used proceeds from the Cosmetic Ingredients business divestiture to make net repayments of $586 million on its commercial paper program and $250 million on its Revolving Credit Facility[76] Note 18. Commitments and Contingencies Discloses various commitments and legal contingencies, including class action lawsuits and ongoing antitrust investigations - The company faces putative class action lawsuits in Canada and the U.S. alleging violations of competition laws (Sherman Act)[110] - The European Commission (EC), UK Competition and Markets Authority (CMA), and U.S. Department of Justice (DOJ) are investigating potential anticompetitive conduct in IFF's fragrance businesses. IFF is cooperating with these investigations[112] - During Q1 2024, IFF recognized a non-material provision related to a procedural aspect of the ongoing investigations[112] Management's Discussion and Analysis of Financial Condition and Results of Operations Management analyzes Q1 2024 financial results, segment performance, liquidity, and capital resources, noting sales decrease and profit improvement - Q1 2024 sales decreased 4% on a reported basis (1% currency neutral) to $2.9 billion, primarily driven by the impact of divestitures totaling approximately $153 million[128] - Gross profit increased 6% to $1.024 billion, with gross margin improving to 35.3% from 31.8% in the prior year, driven by volume increases, productivity gains, and favorable pricing[129] - The company is in compliance with all debt covenants, with a net debt to credit adjusted EBITDA ratio of 4.42 to 1.0 as of March 31, 2024, below the required covenant level of 5.25x[168] Results of Operations This section compares Q1 2024 to 2023, showing a 4% net sales decrease, a 6% gross profit rise, and a swing to $61 million net income Q1 2024 vs Q1 2023 Performance | (DOLLARS IN MILLIONS) | 2024 | 2023 | Change | | :--- | :--- | :--- | :--- | | Net sales | $ 2,899 | $ 3,027 | (4) % | | Gross profit | $ 1,024 | $ 964 | 6 % | | Operating profit | $ 199 | $ 131 | 52 % | | Net income (loss) | $ 61 | $ (8) | NMF | - Selling and Administrative (S&A) expenses increased 8% to $490 million, primarily due to higher legal fees and provisions for ongoing investigations of the fragrance businesses[139] - Interest expense decreased 17% to $83 million due to lower outstanding debt[142] Segment Performance Analyzes the four business segments, noting sales growth in Health & Biosciences and Scent, declines in Nourish and Pharma Solutions, and varied EBITDA margins Currency Neutral Sales % Change (Q1 2024 vs. Q1 2023) | Segment | % Change | | :--- | :--- | | Nourish | -6 % | | Health & Biosciences | 6 % | | Scent | 12 % | | Pharma Solutions | -11 % | | Total | -1 % | - Scent Segment Adjusted Operating EBITDA increased 50% to $157 million, driven by favorable pricing, volume increases, and productivity gains[150] - Pharma Solutions Segment Adjusted Operating EBITDA decreased 22% to $46 million, driven by volume decreases and unfavorable net pricing[152] Liquidity and Capital Resources Details the company's financial position and cash management, noting decreased operating cash flow, dividend payments, and capital spending plans - Cash flows from operating activities decreased to $99 million in Q1 2024 from $127 million in Q1 2023, primarily due to an increase in working capital[155] - Capital spending for 2024 is expected to be approximately 4.9% of sales, up from 4.1% in 2023[157] - The company's credit agreements provide financial covenant relief through December 31, 2025, with tiered leverage ratio limits and restrictions on share repurchases and dividends[165] Quantitative and Qualitative Disclosures about Market Risk Reports no material changes in market risk from the 2023 Form 10-K, except for cross-currency swap agreements with a $132 million liability - There are no material changes in market risk from the information provided in the 2023 Form 10-K, except for cross currency swap agreements[187] - As of March 31, 2024, cross currency swaps had an aggregate fair value liability of $132 million. A hypothetical 10% change in the USD/EUR exchange rate would result in a fair value change of approximately $146 million[188] Controls and Procedures Management concluded that disclosure controls and procedures were effective as of March 31, 2024, with no material changes to internal controls - The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures are effective as of March 31, 2024[189] - There were no changes in internal control over financial reporting during the quarter ended March 31, 2024, that have materially affected, or are reasonably likely to materially affect, internal controls[191] PART II - Other Information Legal Proceedings This section refers to Note 18 of the Consolidated Financial Statements for updates on legal proceedings, including antitrust investigations and class action lawsuits - For updates on legal proceedings, the report refers to Note 18 of the Consolidated Financial Statements[194] Risk Factors The company states no material changes to risk factors previously disclosed in its 2023 Annual Report on Form 10-K - There have been no material changes with respect to the risk factors disclosed in the company's 2023 Form 10-K[195] Unregistered Sales of Equity Securities and Use of Proceeds The company reported that there were no unregistered sales of equity securities during the reporting period - None[196] Other Information This section confirms no directors or executive officers adopted or terminated Rule 10b5-1 trading plans in Q1 2024 - During the quarter ended March 31, 2024, none of the company's directors or executive officers adopted or terminated any Rule 10b5-1 trading arrangement[197] Exhibits Lists the exhibits filed with the Form 10-Q, including executive agreements and Sarbanes-Oxley certifications - The report lists several exhibits, including a Separation Agreement with Franklin K. Clyburn, Jr., a Letter Agreement with CEO J. Erik Fyrwald, and required Sarbanes-Oxley certifications[199]