Dive Brief:
- International Flavors & Fragrances slashed its full-year sales forecast as consumers are cutting back on spending, curtailing demand for its offerings. Product volumes are not expected to recover in the second half of the year as previously forecast. IFF is a major supplier of ingredients, flavors and other offerings to food and beverage companies.
- Sales in IFF’s Nourish division, which works with food and beverage makers, were hit especially hard. For the three months ending June 30, sales were $1.56 billion compared to $1.82 billion a year ago, with much of the drop coming in functional ingredients.
- IFF said it will continue to “execute a series of strategic transformation initiatives” and will take further action to improve the sales and margins at its functional ingredients business. Along with food and beverages, IFF provides products for the skincare, fragrances, beauty and pharmaceutical industries.
Dive Insight:
As the impact of inflation persists, it’s not only food and beverage manufacturers that are seeing volumes slide but the companies that provide them with vital ingredients.
“The continued customer destocking and volume pressures in the second quarter reflect the broader macroeconomic challenges facing our industry,” IFF CEO Frank Clyburn, said in a statement.
The current IFF was formed following the $26.2 billion merger with DuPont Nutrition and Biosciences in 2021. The combined company noted that it had leadership positions in taste, texture, scent, nutrition, enzymes, cultures, soy proteins and probiotics. Its Nourish division at the time served more than 43,000 customers.
But despite its perceived strengths, it has been a challenging time for IFF since the deal closed. Late last year, IFF announced plans to cut jobs as part of a restructuring to optimize costs and streamline its business. In June, a former Kellogg executive was named as president of the Nourish division.
IFF announced plans in February to sell its Flavor Specialty Ingredients business for $220 million in cash. The announcement came just two months after the New York-based firm said it was unloading its Savory Solutions Group for $900 million.
More deals could be on the way. IFF has hired J.P. Morgan to help it explore additional divestitures, the company said this week.
While inflation and other recent challenges are likely to persist, IFF could help itself by making changes in its important Nourish division. The segment is responsible for more than half of IFF’s revenue.
During its earnings call this week, the company said Nourish would increase commercial resources and focus on key global accounts, boost annual productivity through operational efficiencies; and focus on its strongest product lines and discontinue those that are underperforming.
IFF also said it took a one-time inventory writedown of $44 million related to “unprecedented cost fluctuations” for locust bean kernels, an ingredient used to create a thickening agent.
Meanwhile, competitor Ingredion reported earnings this week. While the provider of texturizers, plant-based proteins, clean and simple ingredients and specialty sweeteners raised its earnings per share forecast for its 2023 fiscal year, it reported sales of $2.07 billion for its second quarter, missing the analyst consensus of $2.2. billion. Ingredion also highlighted consumer challenges in the marketplace.
“Volumes continued to be impacted by inventory rebalancing throughout the food supply chain and shifts in consumer spending behavior,” Ingredion CEO Jim Zallie said in a statement.
