IFF Reshapes Portfolio, Lifts Buyback to $2.5 Billion as Sales Growth Accelerates
International Flavors & Fragrances posted 6% comparable-currency-neutral sales growth on a newly slimmed-down continuing-operations base, up from 3% in the prior quarter, as it moved to divest its Food Ingredients unit.
International Flavors & Fragrances (IFF) reported accelerating sales growth on a reshaped portfolio in the second quarter, a result that arrived alongside the reclassification of its Food Ingredients business as a discontinued operation ahead of its planned sale. The flavors, fragrances and biosciences maker recorded continuing-operations net sales of $1.95 billion, up 2% YoY on a reported basis and 6% on a comparable currency-neutral basis, an acceleration from the 3% comparable growth posted in the first quarter.
The portfolio shift stems from a definitive agreement signed May 29, 2024 to sell Food Ingredients to CVC Capital Partners. IFF now expects net cash proceeds of approximately $3.8 billion, down from the roughly $4.3 billion total transaction value disclosed at announcement, and has restated prior periods to remove the segment from continuing operations. The move follows the completed sale of the SCL disposal group on March 2, 2024. Food Ingredients, which had posted 5% reported sales growth and 3% comparable EBITDA growth as a standalone segment in the first quarter, no longer appears in IFF's segment disclosures.
Profitability on the go-forward business improved alongside the sales acceleration. Continuing-operations adjusted operating EBITDA margin reached 20.9% in the second quarter, above the 19.7% margin the same period would have shown including discontinued operations, and ahead of the 20.7% reported margin in the first quarter under the prior all-in accounting basis.
Below the operating line, results diverged sharply from the year-earlier period for reasons tied to one-time items rather than underlying operations. Income before taxes from continuing operations fell 85% to $64 million from $438 million in the second quarter of 2023, when IFF booked a $488 million gain on debt extinguishment alongside a $111 million loss on business disposals. This year's quarter carried its own set of charges, including a $27 million loss on assets held for sale, $71 million in regulatory costs and $10 million in divestiture costs. Reported diluted EPS from continuing operations dropped to $0.13 from $2.14 a year earlier, and six-month EPS fell to $0.73 from $2.40, a decline attributed to the absence of last year's debt-extinguishment gain.
Segment growth broadened across the business. Taste sales growth rose to 4% from 2% in the first quarter, Health & Biosciences held steady at 5%, and Scent jumped to 8% from 1%, led by double-digit growth in Fragrance Ingredients. The segments' profit trends moved in opposite directions, however. Scent's adjusted operating EBITDA growth turned positive, rising to 5% from a 2% decline in the first quarter, with margin ticking up to 20.2% from 20.1% a year earlier. Taste's EBITDA growth slowed to 6% from 18% in the first quarter as margin compressed to 18.0% from 23.3%.
Cash generation improved. Six-month cash flow from operations, combining continuing and discontinued operations, rose $311 million YoY to $679 million, and six-month free cash flow rose $284 million to $378 million, building on the $92 million of free cash flow IFF generated in the first quarter. Net debt to credit-adjusted EBITDA held at 2.5x in both quarters, while total debt to trailing-twelve-month net income swung to 22.6x from 7.2x, a shift that reflects the drop in trailing net income rather than any increase in debt.
IFF issued full-year 2024 guidance on a continuing-operations basis for the first time, calling for sales of $7.4 billion to $7.6 billion excluding roughly $3.2 billion of revenue tied to discontinued operations, replacing the all-in guidance it had reaffirmed in the first quarter. The company also disclosed approximately $100 million of stranded corporate and functional costs expected from the Food Ingredients divestiture, with a plan to eliminate about two-thirds within a year of closing and substantially all within two years.
The board authorized an enhanced $2.5 billion share repurchase program, including roughly $400 million carried over from a prior authorization. IFF plans a $500 million accelerated share repurchase in the second half of 2024, with the remaining $2.0 billion to follow the close of the Food Ingredients sale, targeting completion by the end of 2025. Restructuring and other charges continued to decline, falling 70% YoY to $6 million in the quarter and to $10 million for the six-month period from $35 million a year earlier.