01—Abstract
Summary
Summary of the 10-Q filed August 6, 2024. Cited figures are marked; the original filing is the authoritative source.
International Flavors & Fragrances Inc. (IFF) reported second-quarter 2024 net sales of $2.889 billiona, down 1% on a reported basis from $2.929 billion, though up 2% on a currency neutral basis.
Gross profit rose 14% to $1.068 billionb (37.0% of sales) from $933 million, and operating profit increased 32% to $191 million. Net income attributable to IFF shareholders was $170 million, or $0.66 per diluted share, versus $27 million ($0.11) a year earlier. The results were heavily shaped by non-recurring items: a $368 million gain on business disposals, mainly from the Cosmetic Ingredients sale completed April 2, 2024, offset by a $282 million loss on assets classified as held for sale and a $64 million goodwill impairment, both tied to the pending Pharma Solutions sale.
For the first six months of 2024, net sales were $5.788 billionc, down 3% reported and flat currency neutral, and net income attributable to IFF shareholders was $230 million ($0.90 per diluted share). Cash flow from operations was $336 million versus $375 million a year earlier, reflecting higher working capital, and capital spending for 2024 is expected at about 5.0% of sales. Total debt was $9.379 billion at June 30, 2024, and the company was in compliance with its financial covenants, with a net debt to credit adjusted EBITDA ratio of 3.98 to 1.0.
Under the amended credit agreements, the leverage covenant steps down to 4.50x for the quarter ending September 30, 2024, and the company is restricted from share repurchases and from cash dividends above $0.81d per share per quarter during the covenant relief period through December 31, 2025. The Pharma Solutions disposal group, expected to close in the second quarter of 2025, had a fair value of $2.686 billion net of estimated costs to sell, and a portion of its net proceeds must repay the 2026 Term Loan Facility. Also disclosed are ongoing antitrust investigations into fragrance businesses by the European Commission, UK CMA, U.S. DOJ and Swiss Competition Commission, and a €15.9 million settlement with the European Commission during the first half of 2024.
02—Key points
Key Highlights
- Q2 2024 net sales of $2.889 billion, down 1% reported and up 2% currency neutral; gross margin of 37.0% versus 31.9% a year earlier
- Q2 2024 net income attributable to IFF shareholders of $170 million ($0.66 diluted EPS) versus $27 million ($0.11) in Q2 2023
- Pre-tax gain of approximately $365 million on the April 2, 2024 Cosmetic Ingredients divestiture, with cash proceeds of about $841 million
- Pharma Solutions sale classified as held for sale, with a $282 million loss and a $64 million goodwill impairment recorded in Q2 2024; closing expected in Q2 2025
- Total debt of $9.379 billion at June 30, 2024, with net debt to credit adjusted EBITDA of 3.98 to 1.0 versus covenant levels
- Six-month operating cash flow of $336 million, down from $375 million, driven by higher working capital
- Ongoing antitrust investigations into fragrance businesses by EC, CMA, DOJ and Swiss Competition Commission, with a €15.9 million EC settlement in the first half of 2024
03—One dollar
Follow one dollar
Of each $1.00 of revenue in Q2 FY2024, International Flavors & Fragrances kept $0.06.
- Revenue$2.89B100.0%
- Cost of revenue−$1.82B63.0%
- Gross profit$1.07B37.0%
- Operating costs−$877.0M30.4%
- Operating income$191.0M6.6%
- Interest, other & tax−$21.0M0.7%
- Net income$170.0M5.9%
04—Financials
Financial Highlights
Figures from 10-QQ2 FY2024filed August 6, 2024Financial Statements
Q2 FY2024 against Q2 FY2023
| Line item | Q2 FY2024Q2 FY2023 | Change |
|---|---|---|
| Revenue | $2.89B$2.93B | −1.4% |
| Cost of Revenue | $1.82B$2.00B | −8.8% |
| Gross Profit | $1.07B$933.00M | +14.5% |
| R&D Expenses | $173.00M$161.00M | +7.5% |
| SG&A Expenses | $493.00M$445.00M | +10.8% |
| Operating Income | $191.00M$145.00M | +31.7% |
| Interest Expense | $79.00M$101.00M | −21.8% |
| Net Income | $170.00M$27.00M | +529.6% |
| EPS (Basic) | $0.67$0.11 | +509.1% |
| EPS (Diluted) | $0.66$0.11 | +500.0% |
| Shares Outstanding (Basic) | 255.00M255.00M | 0.0% |
| Shares Outstanding (Diluted) | 256.00M255.00M | +0.4% |
05—Questions
Frequently Asked Questions
How did IFF perform in the second quarter of 2024?
Net sales were $2.889 billion, down 1% on a reported basis but up 2% currency neutral. Gross profit rose 14% to $1.068 billion, and operating profit increased 32% to $191 million. Net income attributable to IFF shareholders was $170 million, or $0.66 per diluted share, compared with $27 million, or $0.11, a year earlier. Results include a $368 million gain on business disposals and a $282 million held-for-sale loss.
What drove the large gain and loss reported in the quarter?
The $368 million gain on business disposals primarily reflects the sale of the Cosmetic Ingredients business, completed April 2, 2024, for cash proceeds of about $841 million. The $282 million loss on assets classified as held for sale reflects writing the Pharma Solutions disposal group down to fair value less costs to sell, which was $2.686 billion as of June 30, 2024. A separate $64 million goodwill impairment was also recorded for that group.
What is the status of the Pharma Solutions sale?
IFF entered into an agreement in early 2024 to sell its Pharma Solutions business, which is classified as held for sale. The transaction is subject to customary closing conditions and is expected to close in the second quarter of 2025. Part of the net proceeds, when and if completed, must be used to repay borrowings under the 2026 Term Loan Facility, which has been reclassified to short-term debt.
How is IFF's debt and covenant position?
Total debt was $9.379 billion at June 30, 2024, and the company was in compliance with all financial and other covenants. Its net debt to credit adjusted EBITDA ratio was 3.98 to 1.0, below the covenant levels. Under amendments for a financial covenant relief period through December 31, 2025, the leverage ratio limit steps down to 4.50x for the quarter ending September 30, 2024, and share repurchases are prohibited.
What are the main legal and regulatory risks disclosed?
IFF is under investigation by the European Commission, UK Competition and Markets Authority, U.S. Department of Justice and Swiss Competition Commission regarding potential anticompetitive conduct in its fragrance businesses, and it has been named in putative class actions in Canada and the United States. During the first half of 2024 it recognized a €15.9 million provision related to a settlement with the European Commission. The company says it cannot predict the duration or outcome of these matters.
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