International Flavors & Fragrances Aktie

At this time, I would like to welcome everyone to the IFF First Quarter 2026 Earnings Conference Call. [Operator Instructions]

I would now like to introduce Michael Bender, Head of Investor Relations. You may begin.

Thank you. Good morning, good afternoon and good evening, everyone. Welcome to IFF's First Quarter 2026 Earnings Conference Call. Yesterday afternoon, we issued a press release announcing our financial results. A copy of the release can be found on our IR website at ir.iff.com. Please note that this call is being recorded live and will be available for replay.

During the call, we'll be making forward-looking statements about the company's performance and business outlook. These statements are based on how we see things today and contain elements of uncertainty. For additional information concerning the factors that can cause actual results to differ materially, please refer to our cautionary statement and risk factors contained in our 10-K and press release, both of which can be found on our website. Today's presentation will include non-GAAP financial measures, which exclude these items that we believe affect comparability.

A reconciliation of these non-GAAP financial measures to their respective GAAP measures is set forth in the press release. Also, please note that all the sales and EBITDA growth numbers that we will be speaking to on the call are all on a comparable currency-neutral basis, unless otherwise noted.

With me on the call today is our CEO, Erik Fyrwald; and our CFO, Michael DeVeau. We will begin with prepared remarks and then take questions at the end.

With that, I would now like to turn the call over to Erik.

Thanks, Mike, and hello, everyone. Thank you all for joining us today. IFF's first quarter 2026 results reflect our continued focus on execution while serving customers with leading innovations and driving productivity and cash flow. Even amid uncertain market conditions around the world, we're making solid progress on our commitments as we continue to strengthen IFF for long-term success.

I'll start today's call by briefly summarizing the first quarter, and then I'll talk about the key strategic progress we have made so far this year. I'll then turn the call over to Mike, who will provide more details on the first quarter results, segment performance and our outlook for 2026.

Turning to Slide 6. Our team delivered a solid start to the year in the first quarter. Across all our businesses, we delivered solid sales growth driven by volume improvements. Our Health & Biosciences segment led with mid-single-digit sales growth, while Taste, Food Ingredients and Scent all grew low single digits. This growth, combined with our productivity initiatives, resulted in a higher margin.

In the first quarter, we also generated a strong free cash flow improvement compared to last year. This reflects a focus on cash, including working capital. Over the past few years, we have made significant progress simplifying our portfolio. This strategic effort is resulting in our being able to focus and reinvest in our core and highest growth businesses while achieving our deleveraging targets. In March, we completed the divestiture of our commodity soy crush, concentrates and lecithin business to Bunge for $110 million.

Looking ahead, the sale process for our Food Ingredients business continues to make very good progress. While we do not have any additional information to share today, we're pleased by the strong interest in this business, and we will let you know as soon as there is news to share.

In the first quarter, we also announced regional production and added innovation capabilities to better support the continued strong growth of our Health & Biosciences business in Latin America. This includes the startup of our Arroyito site in Argentina, our first full fermentation-based enzyme production in the region, and we opened a household care application laboratory at IFF's Innovation Center in Brazil. Together, these will improve our speed, reliability and locally relevant solution for markets, including brewing, animal nutrition, biofuels and home care. Now with respect to the macroeconomic environment, including the ongoing Middle East conflict, it is clear that uncertainty and challenges will continue to persist through 2026, but we remain focused on advancing our commercial and innovation pipelines, driving productivity and working with customers to offset inflation.

This, when combined with our solid start to the year, derisks the balance of the year and gives us the confidence to reaffirm our full year 2026 financial guidance ranges despite this uncertain environment. IFF's diversified portfolio, the essential nature of our business, strong value proposition and disciplined execution position us well to navigate ongoing volatility.

In sum, we are doing what we said we would do with discipline and clarity. IFF is laser-focused on achieving the strategic goals we clearly laid out 2 years ago. Our leadership team and our highly dedicated IFFers all around the globe are committed to delivering high-value products that anticipate and solve the evolving needs of our customers. While there's more to do, I'm proud of our progress and how our global team keeps strengthening how we serve customers to enable us to deliver on our commitments.

And with that, I'll pass the call over to Mike to offer a closer look at this quarter's consolidated results. Mike?

Thank you, Erik, and thanks, everyone, for joining today. IFF delivered revenue of greater than $2.7 billion in the first quarter with volume growth across all businesses. This solid performance led to 3% sales growth for the quarter, driven by mid-single-digit growth from Health & Biosciences and low single-digit increases from Taste, Food Ingredients and Scent.

Adjusted operating EBITDA totaled $568 million for the quarter, an 8% increase driven primarily by volume growth and productivity gains. Our adjusted EBITDA margin also increased by 110 basis points on a currency-neutral basis to 20.7%, which is our highest EBITDA margin since the second quarter of 2022. We continue to focus on what we can control and the strategic progress we've made across all of our segments is clearly visible in these results.

On Slide 8, I will provide a closer look at our performance by business segment. In Taste, sales increased 2% to $656 million, growing in all regions with a notable mid-single-digit performance in Greater Asia. This segment also recorded very strong quarter of profitability improvements with adjusted operating EBITDA of $153 million, an 18% increase from the year ago period.

Profitability gains were primarily driven by volume growth, favorable net pricing and productivity gains. Food Ingredients sales were up 3% to $839 million as growth in nearly all businesses was led by strong double-digit increases in inclusion and mid-single-digit growth in systems. Volume growth in the quarter was approximately 5%, the highest it has been in several years. Food Ingredients had a strong quarter profitability-wise as well, delivering an adjusted operating EBITDA of $114 million, a 12% increase year-over-year, led by volume growth and productivity gains.

Our Health & Biosciences segment achieved sales of $595 million, an increase of 5% from the prior year, which was all volume-driven with growth across nearly all businesses, especially in Animal Nutrition and Food Biosciences. From a profitability standpoint, Health & Biosciences delivered adjusted operating EBITDA of $153 million in the first quarter, an increase of 7% from the prior year, driven primarily by volume growth.

Lastly, our Scent segment delivered sales of $651 million, representing a 1% growth from the prior year. First quarter performance was led by growth in Fine Fragrance, which had a strong double-digit year ago comparable and consumer fragrances. Fragrance Ingredients was down in the quarter as expected due to continued market softness and price competition in the commodity portion of our portfolio. Adjusted operating EBITDA for the segment decreased 2% to $148 million as benefits from volume growth and productivity gains were more than offset by unfavorable price-to-input costs, specifically in the commodity portion of our Fragrance Ingredients business.

Turning to Slide 9. Cash flow from operations totaled $257 million, which is an increase of $130 million year-over-year and CapEx was $165 million year-to-date or roughly 6% of sales. Our free cash flow position in the first quarter was $92 million, increasing $144 million year-over-year. As mentioned last quarter, we remain disciplined in our execution across all elements of working capital as is a key priority in 2026 and as we remain focused on driving a meaningful improvement in cash flow this year.

During Q1, we also returned $102 million to shareholders through dividends and an additional $35 million through our dilution plus share repurchase program. Our cash and cash equivalents finished at $562 million at the end of the first quarter. As of March 31, our gross debt totaled $5.85 billion, a significant decrease of more than $3 billion compared to the prior year period. Our trailing 12-month credit adjusted EBITDA totaled approximately $2.1 billion. Our net debt to credit adjusted EBITDA ended Q1 at 2.5x, slightly below last quarter. Disciplined capital allocation remains a core focus for us as we maintain our balance sheet strength through operational execution.

Turning to Slide 10. I would like to walk you through our full year outlook for 2026. We are off to a solid start with first quarter results that outperformed our expectations going into the year. This strong performance derisks the balance of the year and gives us confidence to reaffirm our full year 2026 financial guidance ranges. We are operating in an unpredictable environment, particularly as it relates to the ongoing conflict in the Middle East. While we cannot control the macro backdrop, the factors that we can control, including the strength of our commercial pipeline, the depth of our customer partnerships and our continued productivity gains gives us confidence in our ability to execute through this period.

For full year 2026, we are reiterating our sales expectation of $10.5 billion to $10.8 billion, representing 1% to 4% growth. We expect to deliver top line growth in all our divisions, supported by new wins and robust innovation pipeline. From a profitability perspective, we continue to expect full year adjusted operating EBITDA of $2.05 billion to $2.15 billion, represents 3% to 8% growth with solid margin expansion. We continue to expect foreign exchange to have a roughly 1 percentage point positive impact on full year sales growth with a minimal impact on adjusted operating EBITDA growth.

Our full year guidance now reflects only 2 months of the soy crush, concentrate and lecithin business as a divestiture closed about a month ahead of schedule on March 2 versus the April 1 date embedded in our original guidance. As a result of the ongoing Middle East conflict, inflationary pressures are expected to build over the course of 2026. We are proactively working with our customers to offset these pressures through pricing actions, starting with surcharges related to logistics and energy costs and then building to account for raw material inflation.

In terms of phasing, we expect these inflationary trends to adversely impact profitability in the second quarter of 2026, where costs will begin to increase and our pricing actions are not fully implemented. Post Q2, we expect this pressure to gradually ease through the back half of the year as pricing actions take full effect. In addition, our most significant exposure to the Middle East conflict, both from a sales and margin perspective, sits within our Scent business and our Fine Fragrance business in particular.

We anticipate the Fine Fragrance volume in the Middle East will be impacted in the second quarter, due to slower market demand but also temporary supply chain challenges our customers are facing such as getting packaging into the region. When combining these impacts, we expect absolute EBITDA dollars in the second quarter to be lower than the $568 million we reported in the first quarter, principally driven by lower volume, unfavorable price to input costs and weaker mix related to Fine Fragrance softness.

Stepping back, our full year outlook we are reaffirming today reflects a different shape to what we expected 90 days ago with a stronger Q1 and a more measured balance of the year given the Middle East conflict, but our full year goal is unchanged. Behind that consistency is the strategic progress we continue to make at IFF.

We are applying stronger discipline to direct capital allocation towards higher-value initiatives, strengthening our innovation and R&D pipeline, investing commercially where we have great opportunities and driving structural productivity that will compound profitability leverage moving forward. We are pleased with what we're building in terms of a more focused, more competitive IFF, and that gives us confidence in the value we're creating as we move forward.

With that, I would now like to turn the call back to Erik for closing remarks.

Thanks, Mike. Now to close, I want to reiterate that the core businesses at IFF are strong and performing well. Our Q1 2026 results reflect the continued progress we are making in delivering on our commitments. Even in an uncertain and evolving macroeconomic environment, we've stayed focused on what we can control and doing what we told you 2 years ago, we would do, getting to a focused portfolio of 3 strong businesses that are performing well with significantly more potential to create value for many years to come.

I continue to spend a lot of time traveling the world to visit our teams and customers, and I'm ever more energized and confident about our future based on what I see and hear, including how our commercial and innovation pipelines continue to grow in advance. And I'm pleased that our focus allows us to reaffirm our full year 2026 guidance. We are investing for the future. in innovation, commercial and supply chain capabilities and in customer partnerships that matter most.

I'm confident that we have the right strategy, the right team and the right innovation to continue to create long-term value. Thank you, and we'll now open the line for your questions.

[Operator Instructions] Our first question comes from the line of Ghansham Panjabi with Baird.

I guess on the outperformance that you delivered during the first quarter, can you just give us more color on the specifics that drove the upside? And also sort of looking back at the quarter, do you think you benefited from any sort of out-of-pattern ordering due to customer prebuying, et cetera?

Ghansham, thanks for the question. So the strong top line and operating leverage during the first quarter was driven by, first of all, volume-led growth across all our segments, which was great to see and continued solid productivity. We continue to strengthen our productivity muscle. And although we don't know all the reasons for specific orders from all of our customers, we have not seen any indication of significant prebuy.

Our next question comes from the line of Lisa De Neve with Morgan Stanley.

You talked a little bit on the call on the Food Ingredients exits, which is very helpful. I mean just wanted to understand, I mean, can you share some -- where you are in the process right now? And maybe when you intend or hope to update the market on any potential events?

Thanks, Lisa. We are running a very disciplined process, and it's going very well with several potential buyers going through second round of due diligence, and the feedback has been very positive so far. The business, as you know, is performing well. It had double-digit EBITDA growth in 2025 and again in the first quarter of this year. So that gives us a lot of confidence that we will get through this process in a very positive way. And as I said before, we expect to have an update by our second quarter earnings call.

Our next question comes from the line of Nicola Tang with BNP Paribas.

I wanted to ask what assumptions on both pricing and input inflation you're baking into your top line and EBITDA outlook. I'd love to understand kind of magnitude and how much of the inflation do you expect to offset this year?

Nicola, thank you for the question. You're right, we are seeing inflation across various inputs. Just to dimensionalize, Brent crude is a good indicator as it's up significantly versus the average of 2025, and that impacts a couple of elements of our cost baskets. At first, it starts with energy and logistics inflation, where we're starting to already see double-digit increases coming through. And then over time, it will make its way to some of the raw material costs, which we haven't seen a big change yet, but we expect it to come later this year. But please remember, we do have inventory on our balance sheet. So we have some protection in the short term as it relates to raw materials.

And so really, our focus now, energy and logistics, given it's more real time. So we're working with our customers to implement pricing surcharges. This is underway and will build throughout the quarter. And then as you know, our pricing in our industry is a strong part of our algorithm in the sense that it's the part of the way we do business. And so consistent with historical inflationary cycles, we collaborate with our customers to fully offset any inflation. And usually, it's a 12- to 18-month period. I do not expect anything materially different this time around as we continue to engage and work with the customers there.

Our next question comes from the line of Fulvio Cazzol with Berenberg.

Back in February, you anticipated a slow start to '26 and for organic sales growth to sequentially accelerate through the year, supported by the strong innovation pipeline, the improvement in commercial execution. Now I understood the comments that you made regarding the Scent business in the second quarter. But for the rest of the segments, is that still your expectation?

Thanks, Fulvio. So the first quarter came in better than expectations with really good execution across all of our businesses. However, we did not anticipate the Middle East challenges. But as you can see, we have developed the ability to deal well with unexpected global challenges over the recent years. Now having said that, our second quarter is challenged due to factors that Mike explained, but we do expect the commercial pipelines to continue to deliver in the second half, and that's why we are confident in our full year guidance.

Our next question comes from the line of Kristen Owen with Oppenheimer.

Just hoping you can discuss some of the scenarios around the remainder of the year. You've given some good color on Q2. But given the strength of the Q1 results, what needs to happen to get you to the high end and the low end of the guide?

Thanks, Kristen. We're very pleased, as Erik said on the call earlier with the start of the year, right? Volume profitability came in a bit better than we expected. As we look towards the balance of the year in our forecast, we are cautiously optimistic in terms of the operating environment going forward. In terms of top line performance, we are assuming that there's really no fundamental change in the lower consumer demand environment. So for us to achieve the higher end of that, end market demand would have to pick up and improve and contrary to be at the lower end from that perspective. Fortunately, we do have a very strong innovation pipeline and a commercial pipeline that we're working with our customers, and that is a big part of the reason why we have confidence in the sales guidance range.

In terms of EBITDA performance, we remain focused on driving profitability, and our guidance range reflect the now inflationary environment that happened post our original guidance in February. And so the team is fully focused and committed to working with customers now to offset initially through the pricing actions related to surcharges for logistics and energy, but that does take some time. So as we progress over the course of the year, we will see an improvement there. But any material difference between the 3% and the 8% range really is going to come from the pricing aspect to offset the inflation.

The good thing is that at the same time, we're working on incremental productivity initiatives. So in the event that we have flexibility, we're working to drive profitability over the course of the year. And so all in, while the environment has changed, we are consistent with what we're trying to achieve and consistent in our outlook for the full year.

Our next question comes from the line of Michael Sison with Wells Fargo.

Nice start to the year. Just curious, you and the industry have to raise prices. It's pretty obvious why. At what point does this inflation flow through to the consumer and start to impact demand? When I run by duty-free, you look at the fragrance prices, they're pretty high. So just curious both in the businesses at what price does -- at what point does demand start to get impacted by the higher prices?

Thanks, Mike. I expect demand to continue to be solid given everything that we're seeing. In Fine Fragrance, we expect to see continued solid growth for the full year, although less than the double-digit growth we have been seeing. And as we discussed, there is a temporary slowdown in Fine Fragrance in the imports to the Middle East due to the factors of what's going on there. In Consumer Fragrance, we've seen the pipeline grow and we've seen lots of interest in our innovation that we're bringing to the marketplace. And other than the commodity ingredients, which is about half of our Fragrance Ingredient sales, everything else is on a solid base for the full year.

Our next question comes from the line of John Roberts with Mizuho Securities.

This is Edlain Rodriguez for John. A quick one on Scent. I mean, the Ingredients business continues to be the weak link, it seems like. Like how should we think about that business now initially with raw materials going up in the hydrocarbon cost? And how we think in long term, like, how should we think about your position being that long in scent ingredient production?

Thanks, Edlain. So just to reiterate, our Fragrance Ingredients business outside sales is about $500 million a year, and it's roughly half specialty and half commodity. Now the specialty side is very attractive, and we're going to continue to emphasize that part of the business. And we're going to further strengthen it with a strong R&D pipeline that we have -- where we're driving for both internal formulation use, but also external use. And we'll do more here in specialties. We'll do more in naturals, synthetics, and biotech molecules.

Now on the commodity side, that's the part that's very, very challenged and challenged by Indian producers, Chinese producers. And it's an area that we need to continue to have competitive cost for our internal formulation use, but we're deemphasizing sales externally. And you'll see that happen over the coming year or so.

Our next question comes from the line of Kevin McCarthy with Vertical Research Partners.

This is Matt Hettwer on for Kevin McCarthy. With your balance sheet in better shape and incremental cash flow from the divestiture of Food Ingredients on the come, how are you thinking about capital allocation between stock buybacks, R&D investment, bolt-on M&A opportunities and new ventures like Alpha Bio?

Thanks, Matt, for the question. Also maybe just to start, we remain very disciplined in the terms of our allocation -- our capital allocation strategy. Our net debt-to-EBITDA leverage is 2.5x, and we've recently implemented a share buyback program to offset dilution. I think that came in September or October of last year, 2025. In the event that we do have an influx of cash and it comes from a potential divestiture, we will look to maintain our net debt-to-EBITDA leverage, plus or minus 2.5x and then thinking about use of proceeds really around repurchase opportunities to minimize any potential dilution related to a transaction.

All that being said, at the same time, we also look to fund organic growth investments that have higher return profiles and look and pursue potential bolt-on acquisitions and ventures that create strong shareholder value. But I think Erik said discipline a couple of times in his couple of answers. For me, we will be disciplined on how we allocate capital to ensure we're generating strong shareholder returns.

Our next question comes from the line of David Begleiter with Deutsche Bank.

This is Emily Fusco on for David Begleiter. Do you still expect North American health trends to improve starting in the back half of the year with a full recovery in 2027?

Thanks, Emily. The short answer is yes. As we said earlier, we expect the first half health to be flattish and then return to growth in the second half, with acceleration into '27 as our commercial and innovation pipelines deliver with customers. And we continue to see that. We're very pleased with the team we've got in place now and all the efforts that they're making and what we're hearing back from customers as well.

Our next question comes from the line of Josh Spector with UBS.

It's Anojja Shah sitting in for Josh. Thank you for the guidance on Q2, but can you give us a little more detail there, maybe some of the moving parts to get to what you're guiding to for Q2?

Sure. Thanks for the question, Anoj. As you know, we don't give specifically quarter guidance, and we're really focused on delivering the full year objectives and full year results. But to help with modeling, I tried to give some qualitative in my prepared remarks, maybe I'll go a little bit deeper here. In Q2, we expect EBITDA to be lower than our Q1 performance. That's what I said in my prepared remarks. And when I think about it, there's probably 3 drivers.

One, we expect growth to be more moderate in Q2 versus it was in Q1. We also expect to have a bit of an unfavorability in terms of price to input cost as we talked about, we're seeing energy and logistics charges rising, and we haven't really fully implemented our surcharges in place yet, and that will happen over the course of the quarter. And so that will create a bit of a margin pressure in terms of where we are this quarter from Q2.

And then ultimately, the third part for me is really that Fine Fragrance being under pressure because of the Middle East, there's a small mix dynamic there. So when you shape those together, that was why I tried to dimensionalize Q2 EBITDA will be lower than Q1. But then as we move through the second half of the year, all 3 of those various elements should improve, and then we'll progress to the year and finish on where we think to be on a full year guidance range.

Our next question comes from the line of Laurence Alexander with Jefferies.

Erik, if memory serves, when you first came in, kind of your -- one of your goals for the segments was to recoup the share positions that they used to have with a flat to higher gross margin for each of the subunits. Can you give an update on that strategy, what you've seen so far? How long do you think it would take to get there? What it could mean over the next 3, 5 years?

Yes. Yes. Sure. Thanks for the question, Laurence. I feel like we're making very good progress across the company. I think we've done a great job of getting the right to the right portfolio. As you know, the sale of Food Ingredients process is the next important step in that. And then when you look at the 3 future businesses, Health & Biosciences, we continue to make really good progress there in the enzyme areas. The one area that we're focusing and further improving is grain processing in that area, both in enzymes and yeast. But it's a great opportunity. We're doing well, but we can do even better.

Health is the area that we've talked about. We needed a turnaround. I think we're well on our way there with strong leadership, increasingly strong commercial pipeline and a strong innovation pipeline. So as I've discussed, we see that starting to turn in the back half of this year and into '27 accelerating.

In Scent, I think we've got a very strong position in Fine Fragrance. We've got some temporary issues we're working through that we discussed. Consumer fragrance, we've got a very strong team there with a very good pipeline. And then we've got an R&D machine that's really picked up in the last year that takes 18 to 24 months to deliver, but that -- we're seeing the progress in that pipeline that will deliver in 2027 that we're very excited about.

So the real issue in Scent is the commodity ingredients that we talked about, and we're dealing with that. And I think by 2027, we'll see that go away as a headwind and unleash the full potential of the rest of the Scent business.

In Taste, I'm very proud of the team there. We've got now a number of quarters of strong performance ahead of the market, and we've got a good pipeline there. We've got a great team, and we see that strong performance continuing.

And then finally, in Food Ingredients, you know about the sales process. But I think that's been enhanced by the great performance Andry Muller and his team have delivered. As you'll recall, in '23, we had 9% EBITDA margin; '24, they built it to 12% EBITDA margin; '25, 13%; and then this year, I think will exceed 14% EBITDA margin, and that continues to grow and see more opportunity there.

As we said before, the portfolio was optimized within that organization and focusing on the higher growth opportunity areas. We've seen a return to top line growth there that we expect for the full year. So just overall, I think solid performance, including in productivity. Are we satisfied? No. We're pleased with the progress, but we know we've got so much potential that we're creating a bigger ambition across each business, and we expect to realize that in the coming 5 years.

Our next question comes from the line of Patrick Cunningham with Citigroup.

This is Alex on for Patrick. Just curious with all the different puts and takes now, what your expectations are for free cash flow in '26?

Alex, thanks for the question. Cash flow improvement for us is a key priority in 2026. For the year, I continue to expect to see a meaningful improvement really driven by a couple of things: One, improvements in profitability; two, improvement in working capital; three, lower interest expense; and four, a lower incentive compensation payout year-over-year versus prior year. So that's a favorability.

Fortunately, we're off to a very good start for the year, but we still have more work to do as we go for the next 3 quarters to making sure we drive to our target. As I explained on our Q4 call, we've also added a compensation metric for the entire organization, really based on free cash flow conversion to EBITDA. And so now not only are we trying to drive it strategically, we are also counting on it to making sure we're driving really good behavior within the businesses and the overall company.

In terms of our specific target, I will refrain from providing a specific target until we have clarity on Food Ingredients. I think -- but the only thing I will say is that I do expect it to be better in '26 than it was in 2025. So we will see a year-over-year improvement overall.

Our next question comes from the line of Silke Kueck with JPMorgan.

Can you talk about in which segments you think you gained share this quarter, whether it's in Taste or Health & Nutrition? And can you quantify in some way like the product launches that are coming in the back half and in which areas they will come?

Sure. Great question. First of all, I think it's unhelpful to just look at one quarter. I think we've got to look at trends over time. And I'm very pleased with the progress that we're making in Health & Biosciences enzymes, very pleased with the progress we're making in Health & Biosciences cultures, the Food Biosciences. The area of challenge that we've talked about is the health area. I'm pleased with the progress we're making to turn that around. And as I said, we'll start to see some progress there in numbers in the second half accelerating into the next year.

In the Scent side, I think we've done very well versus the market in Fine Fragrance. We talked about some temporary challenges there. On the Consumer Fragrance side, as I've talked about before, I think we fell a little bit behind. We've now got a really strong team in place, a very strong commercial pipeline and we're starting to see that turn. And you'll see that, I believe, in the second half and again into 2027. And we've got a really good innovation pipeline in our Scent business that we did not have before. And I'm very pleased with that. And you'll see that starting to manifest in the marketplace later this year, but really with impact in '27 and beyond in '28 and beyond.

And then in Taste, a very solid performance. We're performing ahead of the market, and I expect that to continue. We've got a very good commercial and innovation pipeline there. We've got a great team there. And so I expect that to continue.

And then in Food Ingredients, the transformation, the turnaround continues, performance -- performing well against competitors in the different parts of that business. And that's why we expect the sale process to continue to go well. So overall, very pleased. We've got a couple of areas in there, the commodity scent ingredients, the health areas that we continue to have to get back to performing ahead of the market in health and deal with our commodity scent ingredients business, but we're making progress in all those areas. So pleased but not satisfied, more to do.

Our next question comes from the line of Christopher Parkinson with Wolfe Research.

It is Harris on for Chris. On the Taste margins, they came in a fair bit better than we were expecting on, say, not a huge amount of organic growth. So can we just zoom in on what's happening there? Is it productivity? Is it maybe pricing is a little ahead there, modulation mix? Just how should we be thinking about that?

Sure. Great question. Thanks, Harris, for that. Really, when I think about the taste business, they have been doing very well in terms of overall growth performance. And so quarter after quarter, whether you compare versus competition or just historical trends, they're continuing to deliver across the board and really predicated on really good volume growth, and the team has been driving that.

At the same time, they've been driving pricing, which has been favorable in terms of net raw material costs. And so that is also a secondary piece that's really helping, not only volume leverage, you're having a favorability in terms of net price to input costs. And third is really around productivity. And so the team has done a really good job of being very disciplined in trying to drive productivity throughout the business. That's helped support margin performance.

Now as I think about Q1 performance on a go-forward basis, timings of inventories and some of that stuff, I think it will abate in terms of that leverage that you saw, 18% currency-neutral EBITDA growth is very, very high. So I wouldn't expect that on a go-forward basis, and it will normalize. But they've done a very good job just the hand they were dealt from a Q1 standpoint to deliver.

Our next question comes from the line of Kate Grafstein with Barclays.

As you start to have pricing discussions with your customers, are you noticing any pushback? And then also, at what level of pricing would you need to offset the expected inflation over the next 12 months? And then I have a follow-up thereafter.

Maybe I'll start, Erik, and feel free. I had the fortune to actually run pricing in our Taste division for a couple of years in my career at IFF. So I will say nothing is fundamentally different. Conversation on pricing is always a give or take relationship. What's really, really important though is you go and engage based on facts. And so what you see from a market standpoint today, nobody can refute logistics, energy increases overall. So we're really having the tactical conversations specifically on that.

We also want to collaborate with our customers. And so we can offer solutions to help them reduce cost by reformulating, doing different types of things, we are absolutely more than willing to do so. And so those are the types of conversations we're having now. So nothing is better or worse than where it's been. It's always been -- it's kind of consistent to the historical norms.

In terms of the level of pricing, I think the way I would kind of categorize it, and I'll refrain from giving too many specifics. I think there's probably a modest benefit or increase in terms of overall price this year as we work through really on the logistics and energy piece to it. But as we go forward, we're really focused on the raw material piece. And as we go in the back half of this year and really into '27, we've got to get our heads around that and start working with our customers there. So that's the way we're treating it. It's modest, Katie, this -- the next couple of quarters in terms of overall price, but I think it will build over time as we progressively move forward.

And let me just add that having trust with our customers is really, really important to us. So we're being very clear that we're not trying to take advantage of this and increase our margins. We're trying to just pass through the cost increases we're seeing from these higher costs and being very clear about the cost. Where we're trying to drive our margin improvement is through great innovation that customers love and help them profitably grow and through productivity. Katie, do you have a follow-up?

Yes. I just wanted to ask on the productivity piece. I guess, is there -- it's been very strong. It was strong last year, strong this quarter. Is it possible to accelerate the productivity as another lever if pricing doesn't come through as strong as you expect?

Yes. I think the answer is yes. I think you can always look at the organization, you can always look for incremental opportunities. We have a long-term productivity plan that the teams are working on as they think about their margin evolution. But in terms of the short term, if there is a short-term pressure, we should have levers that we can pull and try to drive in terms of incremental productivity to help minimize any potential gaps. But first and foremost, really focused on making sure we get the surcharges in place. And then as we progress over the course of the year, we will consider whatever we need to do in terms of productivity to cover.

Thank you. At this time, I would now like to turn the conference call back over to Erik for any closing remarks.

Well, thanks, everybody, for joining. I just want to summarize by saying that 2 years ago, we laid out our planned direction. We're executing well, doing what we said we would do. We've said we would drive our commercial pipelines, our innovation pipelines, that's happening and that we would deliver on productivity, that's happening. I am very proud of Team IFF all around the world making this happen. And let me just close by saying that we love our customers, and we love bringing them leading innovation that helps them drive profitable growth and enables us to also profitably grow. Thank you.

Thank you. That will conclude the IFF First Quarter 2026 Earnings Conference Call. Thank you for your participation. You may now disconnect your lines.

Good afternoon, everyone. We're excited to welcome International Flavors & Fragrances back to CAGNY, especially Chief Financial Officer, Michael DeVeau, who is representing his team that includes CEO, Erik Fyrwald, who's celebrating his daughter's wedding and several business unit heads who are here with us today. We're very lucky to have them. Please join me in thanking IFF for sponsoring dinner tonight, which looks absolutely spectacular.

For decades, IFF's products and systems have added critical value to many of the presenters here this week and many consumer companies all around the world. In 1 year on the job, Michael and his team have taken equally critical steps to rejuvenate the shareholder value machine. They've repaired the balance sheet and executed a disciplined capital allocation strategy, including portfolio optimization through divestitures. More importantly, they're driving productivity by implementing a new operating model and key process transformation proven principles that are already working for IFF. Michael, welcome. Thank you, and take it away.

Great. Thank you, John, and thank you, CAGNY, for having us again. I appreciate the warm introduction. Before we begin, I do want to extend the invitation to dinner tonight. It's -- I think it's been 3 years or 4 years since we actually hosted a dinner here. It's an awesome time for us because you hear us speak about certain things, but we actually bring it to life later on. So if you can make it, it would be fantastic to have everybody join.

Maybe just very, very quickly covering the cautionary statement, and I'll go quick, the non-GAAP reconciliation -- a reconciliation of our non-GAAP measures to our GAAP measures can be found on our website. So if you have any interest or questions, please look there. Really excited to tell the IFF journey story of where we are today versus where we were a couple of years ago. I did bring some friends with me today. So maybe just quick formal introductions. Yuvraj Arora leads our Taste division. Leticia Gonçalves leads our Health & Biosciences division and Ana Paula Mendonça leads our Scent division and Michael Bender on the end who leads Investor Relations for us.

And so I'm going to go pretty quickly, and then I'm going to turn it over to them because they're the main part of it of the story. But I do want to start for people that are newer to the IFF story or want to get a refresher to it, really want to leave a couple of key points. One, we are a strong and highly diversified business. And so when you think about our industry, it is attractive. There's high barriers to entry, steady growth, good margins overall. The value proposition of our story is really strong. We represent 1% to 4% to 5% of the cost of a product, but we're 50% of the reason why consumers purchase a product. They like the taste or smell, right? That's the reason why they're buying. We're in the business of what I consider as essentials, right? So in an environment where there's a lot of volatility, diversification matters.

And so if you look at the bottom of the chart, you could see four divisions, Food Ingredients, Taste, Health & Biosciences. We're going to focus on the three today, but it's pretty balanced across the board. By market, you could see it's about 50% developed markets, 50% emerging markets, different growth dynamics that the team is going to touch on, but an important factor when we think about the overall diversification. And then all of you here have been here all week. So there's a lot of multinational CPG companies. A lot of them are big customers today. That's about 1/3 of our business, but we have 2/3 of our business that are midsized, local, regional, smaller players and private label. Really good when you think about the growth dynamic, right? And so from a diversification aspect, very, very strong.

Strategic progress. We've been on a little bit of a journey. We went through an acquisition phase, a little bit of a divestiture phase. And what I really like -- let's anchor back the last 2 years, 2 or 3 years. And we've had a lot of great strategic progress overall. There's a lot on the slide, so I'm not going to cover it, but there's three to me that stand out. And I think actually John did a very good job at summarizing it. First, it's really about what we did to strengthen the business. And I'm going to go through this in a minute, but it's how do we think about the reinvestment aspects, and OpEx and CapEx to get us to be a long-term profitable growth, sustainable platform. We've also changed a little bit of the operating model. So these individuals actually have full accountability, everything from sales to EBITDA to cash flow. So they have end-to-end accountability, which is super important when we think about the execution dynamic.

We've also had a lot of work on portfolio optimization. We've divested about 11 companies -- 11 businesses in the last couple of years and with the use of those proceeds, improved our capital structure to what I'd say is where it is today and hopefully is trending lower over time. But more exciting, as I joined a year ago in this role, specifically, the renewed focus on returns, cash flow generation, super important for me because it feels like it's bringing me back to days where this is about disciplined choice, right? The more choice we make, the better return philosophy that we have, the better the business will become longer term over time.

Let me quickly unpack, and I realize there's a lot on each one of these slides. So I broke it up in operational expenses, capital expenditures over the last couple of years. So going back from 2024 to 2026, you'll see we're spending about $150 million in operational expenses of reinvestment in the business. That's big for us. We haven't done that in many, many years. And that's really around innovation, R&D and commercial capabilities. Again, you're going to hear that in more. This is all supported by a culture of productivity. And so a lot of this is being driven by a lot of self-efficiencies that we're driving within COGS and SG&A to making sure we're funding this, not only to support the reinvestment aspect, but keep to the bottom line element to it.

At the same time, over the same period, we've increased our CapEx spend. And so you could see '24 is 4%, '25 is 5.5%, '26 it should be around 6%. This is really around capacity expansion. Leticia is going to explain some of that when she goes through her side from the health and bioscience of it, but also network optimization and digital transformation to bring IFF to the next stage as we think about profitable growth. We did all that over that same period of time and through 2026, midpoint of our guidance range while delivering 4% top line, 10% EBITDA growth. That's an algorithmic view of our business. We should be in these ranges as we think about our go-forward basis when we think about these three core businesses. And so Taste, Scent, H&B not only driving bottom line performance, but also driving the top line piece to it.

Food Ingredients was another big piece of the margin story. And so since 2023, they've actually expanded margins about 500 basis points to just shy of 14% when we finished 2025 overall. It's about volume growth, volume leverage. So growth is super important in our business. As we grow our business through those reinvestments, the incremental margins are between 30% and 35% EBITDA margin. So there's nice leverage in there. At the same time, supporting that is really around the strong productivity effort that we're trying to drive consistently.

Over that same period of time, we've also looked at the portfolio and we've optimized it up in terms of higher value, higher return, higher growth, higher-margin businesses. And so just as a point of reference, divested about 11 businesses really to sharpen the strategic focus, simplify the portfolio overall. But if you look back at the businesses we've divested, the average gross margin of those businesses are about 29% versus our year-end 2025 average about 36%. And so we're really, again, thinking about upscaling our portfolio to higher gross margin businesses over time.

Using the proceeds, which is about $6 billion of proceeds related to these 11 divestitures allowed us to address our capital structure. And so when you think about the capital structure, today, we're in a much stronger, much flexible balance sheet than where we were just 2 years ago. And so you can see here, we were at 4.5x in 2023. And then through the divestitures and the improvement in operational performance, we drove about 190 basis points improvement in our net debt to credit adjusted EBITDA to about 2.6x. And again, hopefully trending lower over time.

At the same time, we've authorized the share buyback program first time in 6 years, 7 years that we actually had authorization to do a share buyback of a $500 million authorization. It is a dilution plus model. So at minimum, we're looking to offset dilution. But at the intrinsic value of the business is -- or the share price is not meeting the intrinsic value, we will purchase more because we think there's upside and good return there.

Go-forward strategy, and then I'll turn it over to the businesses. If anything, I'll leave you with winning with a focus. It's about winning in the right markets with the right customers. It's about being done through innovation. So the more we talk about innovation, the more we bring innovation to customers, the more we'll win in the business. Targeting high-return opportunities, bigger, bolder bets with better return profiles will drive, obviously, top line growth, but also a margin premium as we continue to go. And then we're going to continue to maximize the portfolio towards that high-value businesses.

And so if the businesses are good and they're strong margins, we're going to make sure we invest behind them to get this proportional growth. And if there's areas that they're fixed -- that they're underperforming, we're going to try to fix it. And if we can't fix it, we will exit it. And so this is going to be all supported by what we say is people, process and digital transformation overall. And so maybe I'll pause there, and I'll introduce Yuvi to take us through the Taste side.

Thank you, Mike. Good afternoon, everybody. It's a pleasure to be here with all of you today. My name is Yuvraj. I have the privilege of leading our Taste division at IFF. My background is actually in CPG, and I've spent the bulk of my career with the Kellogg Company with roles in marketing and general management around the world. When I joined IFF a little less than 3 years back, I actually joined as the President of our Nourish division, which was the combination of our Taste and Food Ingredients businesses. In 2024, I led the separation into two separate externally reported segments as is today, Taste and Food Ingredients. And since then, I've taken over the leadership of the Taste business, a business that I've increasingly fallen in love with.

And I say this for three reasons. First is flavors are embedded in consumers' daily lives through all the products in food and beverages that they consume throughout the day around the world. Secondly, flavors are critical, the primary driver of consumer preference and liking disproportionate to the physical presence they actually have in the product, which is a great value proposition for us. And thirdly, we have a long-term structural tailwind as our customers innovate and renovate to meet evolving consumer needs, which is great for our business.

So we take a look at a snapshot of our business. First of all, we operate in a segment that is a great combination of scale and growth. So flavors market is estimated at $16 billion to $17 billion, growing 3% to 4%, which is again a great market to play in. Taste at IFF delivered $2.5 billion in net sales last year in 2025 with a 19% EBITDA margin. I must say here that we actually delivered market-leading growth of 4% top line organic and 10% EBITDA sales growth.

We have a global presence with our R&D, application and manufacturing sites around the world, catering to a large number of customers across diverse categories. Mike already alluded to it. We have an amazingly diversified business across any vector, food and beverage categories, geographies when you take developed or developing markets or customer size, large -- from large multinationals to small and emerging brands to actually small players in emerging markets. It's a balance that we are proud of, and we strive hard to maintain and strengthen as we go forward.

So where does IFF Taste stand out? First of all, we have leading positions, #1 or strong #2 positions in critical markets like India, Indonesia and the U.S. Second, we believe we have a leadership position in modulation, which is a critical technology platform, and I'll talk a little bit more about it in a minute. We have been using AI for a while now. We are strengthening our efforts there, not only in flavor development where it has a great application, but in things like concept development, where we can help reduce our customers' innovation development time lines and sometimes by eliminating market research for them. We have a distinct go-to-market model called Tastepoint, especially in North America to meet the needs of smaller tier and emerging customers and brands. So these are some things that we feel are competitive advantage for us.

Market and consumer trends. Actually, I'm not going to spend too much time on this because over the past 3 days, every company has spoken about exactly the same trends. In fact, all those companies happen to be our customers, and we thank them for their business and partnership. I'll just take a couple of examples here, particularly in the health and wellness area. One is GLP-1. I know there's been a lot of talk about it. We believe that GLP-1 is and will be the most powerful force impacting food and beverage consumption, not only in the U.S. but around the world. We have invested a lot in this area in terms of consumer and sensorial studies and work. And we have teams across our business units, Health & Biosciences, Food Ingredients and Taste, co-creating concepts and co-creating products with our customers to meet the needs of these consumers.

A second example, there is a revolution happening in the beverage category. This one, particularly skewed to North America, but you can see signs of it elsewhere as well. We've all seen alcoholic beverages are on a decline and beverage consumption is shifting towards different occasions and need states. On an average, an American has 57 beverage moments in a week. It's a giant market. And these occasions are shifting to more functional benefits like hydration, energy, protein and increasingly gut health. So we are pivoting in that direction as well. I'm going to take this opportunity to invite you all to the food and beverage booth later at dinner today, where you can interact with the team and go deeper into these two specific areas.

Now how we address these needs and evolving consumer needs, whether it's from a consumer standpoint or from a regulatory standpoint is through our innovation programs. We have two kinds of innovation platforms, the 6 that you see on the right-hand side, 3 Re-Master programs around critical flavor tonalities, so citrus, vanilla and meat. Citrus, as you can imagine, a very, very important flavor tonality in beverages. Vanilla is a foundational flavor profile, particularly relevant in dairy. And then meat, very important for soups, bouillons and noodles in Asia and Africa, which is a large segment over there. So we have specific programs aimed to develop solutions and further taste profiles in these areas.

And then we have our Re-Imagine programs, Re-Imagine delivery, which helps us meet the needs of our customers in different applications and processes. Re-Imagine Origins, which houses our program around clean label as well as critical commodity replacers and extenders like cocoa. But the flagship program that we have is under Re-Imagine Wellness, and that's around modulation.

So what is modulation? Modulation is basically we have a set of tools, technologies and solutions that help maintain and sometimes even strengthen the taste profile even as you reduce things like sodium salt or fat in a food or beverage or as you add things like protein, fiber and whole grain. The good news for our business is that the good stuff tastes bad and the bad stuff tastes good. So this is a great tailwind for our business. And modulation as a technology is now a sizable part of our business and has grown double digits for the last 5 years and in 2025. So this is an area where we continue to invest in future technologies to help our customers, which brings me to my last chart around how will we continue driving value creation for taste at IFF.

I'm a big believer in disproportionate focus behind areas that offer high growth potential or areas where we might be underdeveloped or underleveraged. So across the vectors that you see on the chart, we have made those choices to pivot us forward. In terms of geography, we have identified 6 geography clusters, which is U.S. and a combination of high-growth markets, which will drive more than 2/3 of our growth going forward, over-indexed growth from these markets.

I'll just take an example of Africa. While everybody talks about China and India, and they are very, very important, Africa is the next frontier. A 1/4 of the world's population is going to reside in Africa by 2050. It's the single largest, youngest population base. The average age of an African is 19 in that continent. The per capita consumption is on the rise, urbanization, middle class. So there's an explosion happening in processed foods and food and beverage categories over there. We are underdeveloped in this continent, and we are making investments and efforts to increase -- to get to our fair share and beyond there.

In terms of categories, again, we've got a widespread spectrum of categories, but we believe there are a few specific ones that will drive disproportionate growth. Lifestyle or functional beverages is perhaps the most important of them. Dairy, in particular, yogurt and dairy drinks with protein are going to be a very, very important area. And then meat tonalities in soups, bouillons and noodles for the emerging market population growth.

In terms of focus on innovation, I already talked about modulation. That is our primary focus area in terms of innovation. And then lastly, in terms of customer base, we've again identified three geographic channel clusters that will drive disproportionate growth. The first is distribution in Asia with a focus on getting to Tier 2 -- penetrating Tier 2 and Tier 3 towns in markets like India, Indonesia and China. These are the towns that are actually driving the growth for these markets. I often joke that Shanghai is no longer an emerging market. Shanghai acts like a developed market. So it's a Tier 2 and Tier 3 towns that are the most important there. Second, food service in North America, increasing on out-of-the-home consumption. You heard multiple companies talk about that. And third, private label, particularly in Europe and increasingly in North America.

We believe that the choices that we have made along with the capabilities that we've already demonstrated and we are investing behind will help us continue driving market-leading growth and help us meet our financial goals of midterm -- mid-single-digit top line growth and high single-digit EBITDA growth. So in summary, we operate in a great, healthy, attractive, sizable, scalable segment. We have demonstrated market-leading growth and our commercial pipeline is strong. And we are investing in the right strategic areas that can help continue driving growth and creating value for IFF Taste. Thank you. And I'm going to hand over to Leticia, the President of our Health & Biosciences division.

Thank you, Yuvi. So it's a pleasure to be here with you today. As I was already introduced, I lead our Health & Biosciences business for IFF. Joined the company almost a year ago. I'll be celebrating my first year in a couple of weeks. Really, really excited about the opportunities that we have in front of us to really deliver an amazing business and drive science into innovation in the market.

Our business is really a crucial engine behind how IFF deliver value through bio innovations every day. We harness science to shape life and well-being through bioinnovation across five unique and distinct segments: Food Biosciences, Human Health, Animal Nutrition & Health, Grain Processing and Home & Personal Care. What I love about this business, all those five segments have growth opportunities, and they are very diversified. Not only that, our products touch billions of consumers' experiences every day. 1 out of 3 probiotic supplements contains IFF probiotics. 1 out of 3 yogurts globally contain IFF cultures. 50% of cold laundry wash products contain IFF enzymes, just to name a few. Our Biosciences for impact is translating to a robust and profitable business platform that is here not only to drive scale, but also scope.

Let's talk a little bit about it. We serve a $20 billion market that is growing 2.5% per year. Even though 2.5% seems small, in fact, it's growing. It's growing even bigger in increasing the target addressable market that I'm going to talk in a few minutes. We operate at scale and scope. We just finished a very strong 2025 with $2.3 billion in sales and 26% EBITDA margin. We have over 7,000 customers, 4,000 employees and 38 sites that cross over R&D applications and manufacturing. And we have a very balanced exposure with a good mix of product portfolio, end market segments and global footprint. Most of our business is in Europe and North America. But good news, we are growing twice as fast in the emerging markets, especially Asia and LatAm.

What makes us special? What really differentiates IFF Health & Bioscience? What makes us win in those categories? A couple of things. First is our world-class biosciences capability from discovery to a scale innovation engine. We are not just inventing new things, we are innovating at scale with partners in the market. We are category leaders being #1 or #2 in probiotics, cultures and enzymes. And we compete with a full system approach from our broad portfolio, our deep partnerships, our technical expertise and our leading talent that really bridge science to co-innovating with customers and partners to differentiate solutions in the market. I've been with many customers in my first year, and it's amazing what I hear from our own customers saying, "We love your people. We love your science, and we love co-innovating with you." That's pretty powerful. These are all relevant advantages when consumers are changing fast.

I'm going to go quickly here because you already heard this through the last few days, and Yuvi already touched some of this, too. But there are three specific trends that are helping shape our growth strategy for Health & Biosciences. One, health and well-being amplified. Consumers are prioritizing healthy living from eating less sugar, eating more proteins, taking more probiotics for gut health and that all being now amplified through GLP-1 users as well. Biorevolution across the value chain from Regen Ag on the farm to bringing bio-ingredients and biomaterials through many consumer products. And the third one is all of that is great. But given the economic uncertainties, consumers and customers are looking to affordability, supply chain resilience and performance altogether. So there is no one that is more important than the other. All three matter, and we need to bring all of them without compromise.

How do we convert those trends into focused innovation with impact? That gets into our innovation platforms. Our innovation platforms drive measurable consumer value and customer differentiation. We invest $220 million per year in R&D. That's roughly 9% of our annual turnover. And 35% of our revenue comes from new product launches in the last 5 years. That's pretty powerful. A couple of examples. We have a great innovation platform around enzymes for cold and quick wash with superior fabric cleaning and care. Oh my gosh, if we can get all of that, that's amazing. Safer and better detergents, right? They can be quick wash, cold wash and superior clean and care in our fabrics.

The other one is how we're extending feed enzymes from chicken and pigs into cows. And imagine how many cows are in the world to feed. So that's a great opportunity. Better solutions for metabolic, immunity and digestive health in bringing a comprehensive approach to really address all those health needs and higher yield in our biofuel production. With the huge trend for more biofuels, we are helping the biofuel producers to really increase yield in their production.

Those are some examples, but something that really gets me excited every day since I joined IFF, that's the most exciting platform that we have in innovation, DEB. Design Enzymatic Biomaterials is a first to the world high-performing biodegradable material coming from simple sugars from nature. That allow us to expand the TAM to another $60 billion bio-based market opportunity. Every 5% market share translates into a $3 billion revenue opportunity for DEB. Good news, we are already commercial with a couple of products in home and personal care, but that's just the beginning. We are now expanding to many new applications into multiple adjacent markets that are today in specialty polymers. And we are not doing this alone. As we are bringing the science and the applications, we are already doing this with partners like Kemira and BASF to make sure that we can scale faster to the market. I hope all of you will be able to join our dinner tonight because you'll be able to see some of our innovation, including DEB into one of our stations there.

Bringing it all together, we are creating long-term value. We are also creating short-term value. And in order to maximize growth and profitability in the next few years, here are four areas of priorities. First, earn the partner of choice with our customers. Win with the big winners in the market, not only the existing one, but new ones that we are going after. We are also revitalizing our North America Health business by expanding our go-to-market capabilities into new e-commerce customers as well as new innovation. We are working to innovate faster and better by shaping bigger bets with existing strategic partners and also using AI to accelerate our ability to innovate from discovery to commercialization. Digital biology is one of the areas that we are innovating AI as an example.

We are expanding capacity for both enzymes and cultures to not only capture the market demand today, but to start accelerating to the future. And we are also driving an end-to-end supply chain optimization to balance cost and quality and optimize margin in our supply chain. And all of that only possible because we do have an amazing team. Our one high-performing growth-minded team is what's driving the biggest difference in our business. I'm really passionate about our people.

In summary, we are committed to grow faster than the market and improve our margins, targeting single -- low single -- mid-single-digit growth in our sales and high single-digit growth in our EBITDA in the next few years. And I truly believe with our science, our people and deep partnership with our customers, we'll be able to achieve that. Thank you. Now with that, Ana?

Thank you, Leticia. Go to the next slide. Hi, everyone. I'm Ana Mendonca, as Mike introduced me before, and I have the privilege of leading the Scent division for the past 2 years. But I've been part of IFF for 30 years now. Yes, you heard right, 30 years. It's a great journey. And we are -- I really -- I'm very passionate to this business as I am today, as I was 30 years ago. As we are delivering in our purpose every day in the Scent business with our leading scientists and our leading perfumers to help make the life of consumers better every day in creating joyful moments.

Scent is a core part of IFF's identity. It's a strong driver of growth and profitability and is a resilient business, and we've been delivering 22 consecutive quarters of growth even through the major transformations that Mike mentioned earlier. As you can see on the image, scent is present in consumers' life 24 hours a day, 365 days per year and is a powerful driver of emotion and premiumization.

I was at ACI, the American Cleaning Summit 2 weeks ago in Orlando as well, meeting with our main customers and the energizing piece of the conversation is that our customers are prioritizing innovation and product superiority to drive volume growth. And Mike mentioned this before, is a small message, but a powerful one that fragrance is a small share of the formulation cost of the end product and it has a disproportional share on choice, brand equity and value creation.

Now going to the business overview. The Scent business achieved $2.5 billion in sales in 2025 with a 21% EBITDA margin. We have a robust, broad and expanding and growing business. And if we look at the breakdown by business, we have a healthy and resilient portfolio. 1 out of 4 consumer products contains an IFF fragrance. Nearly 1 out of 3 perfumes sold in the world was created by IFF. And we have the largest fragrance portfolio in ingredients across synthetics and naturals.

When you look at the breakdown by geography, despite our strong U.S. roots and heritage, you can see more than 80% of our revenue is generated outside North America, and we have a strong position in emerging markets in Latin America, in Greater Asia. And as you can see, our largest revenue is coming from Europe, Middle East and Africa. And if you look at the breakdown by customer, at the end of the day, this business -- fragrance is a business driven by customer intimacy. And we have this incredible culture at IFF of customer obsession and customer centricity. And our global footprint with the creative centers, the application centers and the R&D centers really allows us to serve customers at scale as well as delivering locally relevant fragrances, which is really key for growth.

So where do we stand out? As I said, we have consistently grown ahead of the market. And we are market leaders in prestige Fine Fragrance based on our legacy, but I will tell later, we have identified new growing geographies that have helped us deliver tremendous growth in Fine Fragrance. I don't know if you know, but IFF invented the fragrance encapsulation nearly 2 decades ago based on our brilliant science working with our perfumers identifying an unmet consumer need. And that has really been very instrumental to our leadership position in Fabric Care. And in the last few years, scent boosters is a new format that is driving a lot of value in the fabrics category, and we have a very strong position there.

IFF is the undisputable leader in naturals. We acquired LMR, stands for Laboratoire Monique Remy in Grasse back in the 2000s and is a full ecosystem of solutions in naturals. We have scientists, we have perfumers. We have agronomists, we have creators, all focusing on developing a really strong pipeline of natural ingredients. We hold positions, as I mentioned earlier, in Latin America, leading positions in Latin America and in India. And I agree with you, there are geographies that are also maybe outpacing India, but for the scent business, it's a huge growth market.

We count on penetration of new categories for the Indian consumers, and that's going to grow, and we can capture value on that. And those are two of the most attractive growth markets between Fine Fragrance and our Consumer Fragrances as well. And we have, over the past 2 years, unlocked a strong and exciting commercial and innovation pipeline. And the focus now is conversion into sales. And our teams are really, really focused on those outcomes.

AI for Scent is not really changing dramatically the model, is basically becoming an enabler for helping efficiencies. I give you an example. Our perfumers spend time on reformulation, for example, for regulatory reasons, tox, we call tox modification, cost modifications, and we have a really good foundational piece there that can help our perfumers save time on those, let's say, mechanical activities and focus on growing the business and unlocking value. And of course, it's going to help us on our productivity goals, bringing efficiencies and augmenting creativity as we're always looking for unexpected combinations of ingredients to bring new solutions and AI can help us there as well. It's a journey, and we're at the beginning of that journey.

And I have to say, as Leticia said as well, that behind these achievements, I have an exceptional talented, passionate team of perfumers. We have some of the leading master perfumers of this industry with, I think, this being one of our competitive advantages. Perfumers make a difference in the scent business. They really bring the science and creativity together to unlock growth.

So we talked about market trends. I think for me here, it's a mix of trends that are challenging the scent industry and trends that are really creating amazing new opportunities. And the industry is changing rapidly and our customers' needs are changing rapidly as well. We all talked about the shift to clean label, sustainable solutions, and that creates tremendous regulatory pressures in the scent business from a fragrance ingredients catalog perspective. So we're working, of course, fiercely on that.

On the other hand, new generations, Gen Z and the new generations coming, they are driving the needs for personalization on fragrance and new rituals. If any of you have kids between 12 and 16, I think you know what I'm talking about. They're going crazy on fragrances. They are layering fragrances. They are creating new rituals. They are buying online. They are really changing dramatically the consumer behavior, especially on the fine fragrance and beauty categories. And then there is a growing role for scent in health and well-being, and that's an opportunity that we are leveraging. I'll talk a bit in a second.

So the IFF ambition on Scent is to lead the transformation of the scent industry given all the rapid trends we see happening. I want to spend more time here. Our full R&D transformation started 18 months ago. We virtually aligned the R&D priorities with our customer needs. We super, super simplified how we work upstream and downstream in science. And we increased our agility by leveraging the in-house capabilities that we have, while we have selectively formed external partnerships via open innovation. That's a great new mindset in the transformation.

We invested in three innovation platforms you see here. The first one is Science of Perfumery. Simply said, we have accelerated the building of a differentiated molecule portfolio between synthetic molecules and naturals molecules. The key here for IFF on that transformation is biotechnology. And that is where we are investing both on transforming existing ingredients or creating new molecules using and leveraging biotechnology.

The second platform is art of performance, and that's when we take those ingredients and apply to the formulation of our customers and deliver performance. I have one very practical example that if you join us tonight, you're going to be able to experience so don't miss it, is a new solution that we brought to the market called ENVIROCAP. Basically, it's a sustainable ECHA-compliant encapsulation technology. And what differentiated us here is that we used biopolymers working in great collaboration with Leticia and her scientists on H&B to be able to deliver an encapsulation system that is regulatory compliant and is delivering perceivable superior freshness, which is a major requirement for our customers. And that continues to help us reinforcing our Fabric Care leadership position.

And the third platform is what we call Science of Wellness. In fact, IFF pioneered in science of wellness many, many years investing in this space. There is a lot of new consumer needs, and we are designing there a portfolio of scent technologies to support emotional, physical and mental well-being. And again, if you join us tonight, if you're sleep deprived for whatever reasons, we have a scent for that. Come and see us. It will be an interesting moment. So those capabilities are actually the enablers that we need for our perfumers to win more than our fair share. And I'm excited about what we have achieved since we started the R&D transformation and very focused investment on those platforms, having ENVIROCAP being the case, let's say, the proof point that we are back winning with technology in Fabric Care.

So as I close, for me, it really comes down to clear priorities to drive growth and margin improvement in the Scent business. I'll start with Fine Fragrance. As I said, we have delivered outstanding performance in Fine Fragrance, double-digit growth every quarter last year, amazing performance from the team. And I wanted to say how important the bets are for the Scent business. 5 years ago, we identified Middle East as a potential growth opportunity for Fine Fragrance. And then we invested in our customer relationships, understanding the consumer from the younger generation to the mainstream, and we're able to deliver incredible, fantastic strong growth coming from the Middle East based on the Arabic perfumery phenomenon. And now they also export to countries as Brazil and to the U.S., and that has been one of the growth engines for Fine Fragrance. So we don't stop there. We are constantly identifying those opportunities. So new geographies, new markets, will be the future growth of Fine Fragrance.

In Consumer Fragrances, our growth has been driven by fragrance-led innovation, and probably you heard that from some of our main customers as well. That's where the focus is on the co-creation model, engagement model that we have with the FMCGs. And as I said earlier, ENVIROCAP is the proof point. But we also have opportunities to increase our market share in higher-margin personal care categories. We've gained -- we newly gained access to more opportunities in personal care with globals and regionals, and we have built a strong pipeline. Again, conversion to sales, it's where we're focusing on.

And in Fragrance Ingredients, I'll be honest with you, we're facing headwinds. The industry is facing headwinds in commodity ingredients. Our strategy has been to move to shift towards high-value specialties with proprietary molecules and continue to invest in naturals. So if you don't remember anything that I said today, but if you remember three things, one is for this business, it is about richer mix via fine fragrance wins, personal care wins, naturals and high-value specialties. It's about faster innovation. And I'm really, as I said, very, very excited about the transformation we have started in R&D, and that is going to be enabled by a simplified, streamlined R&D model.

And self-funded productivity, I didn't talk so much about productivity, but that's where we need to focus to be able to fuel our growth and deliver the efficiencies. We have a strong track record in the Scent business, as I said, 22 consecutive quarters of growth. I'm proud of that. And I'm confident on the outlook that we are sharing with you to achieve the target of mid-single-digit sales growth and high single-digit EBITDA growth over time. I'm very confident we made the right choices over the past 2 years. We have the right teams. We have a strong creative and commercial organization very much linked to our R&D organization, and we started rebuilding the momentum again. So thank you for listening to Scent. Mike, what do we do? Back to you or we wrap up?

Yes, I think we can wrap.

Yes, I think it's about all the time we have. We're going to take it to the breakout room. Please attend the dinner tonight. It looks spectacular. And please join me in thanking IFF once again for their great presentation and sponsoring a dinner.

At this time, I would like to welcome everyone to the IFF Fourth Quarter and Full Year 2025 Earnings Conference Call. [Operator Instructions]

I would now like to introduce Michael Bender, Head of Investor Relations. You may begin.

Thank you. Good morning, good afternoon and good evening, everyone. Welcome to IFF's Fourth Quarter and Full Year 2025 Conference Call. Yesterday afternoon, we issued a press release announcing our financial results. A copy of the release can be found on our IR website at ir.iff.com. Please note that this call is being recorded live and will be available for replay. During the call, we'll be making forward-looking statements about the company's performance and business outlook. These statements are based on how we see things today and contain elements of uncertainty. For additional information concerning the factors that can cause actual results to differ materially, please refer to our cautionary statement and risk factors contained in our 10-K and press release, both of which can be found on our website. Today's presentation will include non-GAAP financial measures, which exclude these items that we believe affect comparability.

A reconciliation of these non-GAAP financial measures to their respective GAAP measures is set forth in the press release. Also, please note that all sales and EBITDA growth numbers that we'll be speaking to on the call are all on a comparable currency-neutral basis unless otherwise noted. With me on the call today is our CEO, Erik Fyrwald; and our CFO, Michael DeVeau. We will begin with prepared remarks and then take questions at the end. With that, I would now like to turn the call over to Erik.

Thanks, Mike, and hello, everyone. Thanks for joining us today. IFF's fourth quarter and full year 2025 results reflect a continued focus on disciplined execution and improvements across the business to further strengthen our position in the market. I'll start today's call by briefly summarizing the progress we continue to make in executing our strategic priorities, followed by a few highlights of how this translated to our 2025 financial results. I'll then turn the call over to Mike DeVeau, who will provide more details on the fourth quarter, segment performance and our outlook for 2026. Turning to Slide 6. In 2025, our team focused on strengthening our ability to drive profitable growth while also strengthening our balance sheet.

We continue to reinvest in a disciplined way across our high-value core businesses, increasing R&D, commercial capability and manufacturing capacity, investments that will pay off for years to come. And we did this while we delivered the full year financial commitments we set out at the beginning of 2025. And while there is a lot more to do, I am proud of how our global team continues to strengthen our ability to serve our customers with leading innovations and deliver productivity even in a challenging volatile economic environment.

Our strengthened balance sheet reflects our more disciplined capital allocation strategy with our net debt to credit adjusted EBITDA down to 2.6x. Our increased investments in innovation and commercial capabilities and CapEx and productivity initiatives are delivering today and making us stronger for the future. We have also taken strategic action to sharpen our portfolio so we can focus on high-value innovation-driven businesses. To recap, we completed the divestitures of Pharma Solutions, Nitrocellulose and Rene Laurent businesses, and also announced an agreement to sell our Soy Crush, concentrates and Lecithin businesses to Bunge, which we expect to happen by April. And most recently, we officially launched the sale process for our Food Ingredients business.

As we communicated in August, we began exploring strategic options for our Food Ingredients business as part of our portfolio optimization. And following several months of extensive preparation by our team, we formally launched a disciplined and competitive sale process and as of 2 weeks ago, are officially in the market. And I'm very pleased with the progress we've made and believe this is the right next step for both the Food Ingredients business and for our Taste, Scent and Health & Bioscience divisions.

We are very encouraged by the depth and quality of interest from strategic and financial sponsors and are confident in our ability to execute this process thoughtfully and in the best interest of our shareholders. We will provide additional updates as appropriate. We are confident that the strength of our people, strategy and execution positions us to deliver on our priorities for 2026 and beyond. We have the right leadership team in place, an engaged and supportive Board and an incredibly talented team of IFF colleagues. Now while macroeconomic uncertainty will continue to persist through 2026, I am pleased how we are entering the year and have strong conviction in our ability to achieve consistent profitable growth and create long-term value for our shareholders. Turning to Slide 7.

We achieved solid sales growth in 2025 against a strong 6% year ago comparable in a tough macroeconomic environment. Over the last 2 years, we delivered average sales growth of 4%. Our 2025 performance was led by Taste, which grew sales by 4% and grew EBITDA by 10%. In Health & Biosciences, sales improved 3% and the team delivered a 7% increase in EBITDA. Scent sales grew 3% against a strong year ago comparison of 12% and increased EBITDA by 2%.

The double-digit sales growth in Fine Fragrance was partially offset by negative growth in Fragrance Ingredients, where we saw double-digit declines in the commodity ingredient sales. In Food Ingredients, the team has done a great job continuing to drive margin improvement. And while sales were down, partly due to soft demand and partly due to the strategic exit of low-margin business, we achieved 10% EBITDA growth and 150 basis points of EBITDA margin expansion. And on a consolidated basis, our overall profitability improved in 2025 as we delivered 7% EBITDA growth with 100 basis points of margin expansion through volume and productivity gains as well as favorable net pricing. Now with that, I'll pass the call over to Mike to offer a closer look at this quarter's consolidated results. Mike?

Thank you, Erik, and thanks, everyone, for joining. In the fourth quarter, IFF generated revenue of nearly $2.6 billion with growth in nearly all divisions. Performance was led by mid-single-digit growth in Health & Biosciences and Scent as well as low single-digit growth in taste. Our sales grew 1% for the quarter against a 6% year ago comparable and were up approximately 4% on a 2-year average basis. EBITDA totaled $437 million for the fourth quarter, a 7% increase, primarily driven by volume growth and our ongoing productivity initiatives.

Our EBITDA margin also increased by 90 basis points to 16.9%. On Slide 9, I'll provide a closer look at our performance by business segment. In Taste, sales increased 2% to $588 million, with growth in all regions, including high single-digit growth in North America, driven by new wins. The segment also recorded a very strong quarter of profitability with EBITDA of $94 million, a 17% increase. Profitability gains were driven primarily by favorable net pricing and cost discipline. Food Ingredients sales of $802 million were down 4% as softness in Protein Solutions and Emulsifiers and sweeteners offset growth in systems and inclusions.

It is worth noting that a part of our top line decline in the fourth quarter and on a full year basis for Food Ingredients was driven by a proactive exit of low-margin business as well as sales -- lost sales due to sanctions in Russia and emulsifiers. Profitability for Food Ingredients declined 11% in the quarter to $82 million, stemming from the volume declines and unfavorable net pricing.

Our Health & Bioscience segment achieved sales of $589 million, an increase of 5% with growth across nearly all businesses. The standouts in the quarter were Food Biosciences and Animal Nutrition, both growing double digits. Home & Personal Care also continued to be strong, increasing high single digits. As we shared last quarter, Health, while improved sequentially from Q3, was down low single digits. Under new leadership, the team has started to execute their improvement plan, and we continue to believe trends will improve over the course of 2026. From a profitability standpoint, Health & Biosciences delivered EBITDA of $155 million in the fourth quarter, an increase of 20% due to volume growth and productivity gains.

Lastly, our Scent segment delivered sales of $610 million, representing 4% growth. Performance in the fourth quarter was driven by continued strength in Fine Fragrance, which increased 10% and mid-single-digit growth in Consumer Fragrance. Fragrance Ingredients remained under pressure due to continued market softness and price competition on the commodity portion of our portfolio.

EBITDA for this segment increased 1% to $106 million as benefits from volume growth and productivity gains were partially offset by unfavorable net pricing, specifically in Fragrance Ingredients.

Turning to Slide 10. Cash flow from operations totaled $850 million for the full year and CapEx totaled $594 million or approximately 5.5% of sales. Our free cash flow position for the full year totaled $256 million. Included in this number is approximately $300 million of Reg G-related charges, primarily driven by our divestiture activities, which accelerated in the second half of the year due to the potential sale of food ingredients. Working capital also represented an outflow of approximately $166 million, reflecting higher inventory levels in strategic areas, along with changes in accounts receivable and accounts payable. We made meaningful progress improving inventory in the second half of the year.

And as we look ahead, disciplined execution across all elements of working capital will be a key priority for us in 2026. Year-to-date, we returned $409 million to our shareholders through dividends and an additional $38 million through share repurchases as we started our repurchase program in the fourth quarter. As a reminder, at minimum, we expect to offset annual share dilution of approximately $80 million to $100 million per year.

Our cash and cash equivalents finished at $590 million, and our gross debt at the end of the year was approximately $6 billion, which is a decrease of nearly $3 billion compared to 2024. Our trailing 12-month to credit adjusted EBITDA totaled $2.1 billion. Our net debt to credit adjusted EBITDA ended 2025 at 2.6x, improving from 3.8x at the end of 2024. Before turning to our outlook for 2026, I'd like to briefly reiterate a point Erik made earlier on Food Ingredients. We believe pursuing a sale for the Food Ingredients business remains the right path forward. With our capital structure now strengthened and improving operational performance and margin expansion ahead for Food Ingredients, we are under no pressure to sell. The business has a strong operating plan, and we are confident we can continue to create value, whether a transaction occurs or not.

This potential sale is about capturing full value for our shareholders and doing what is right for both Food Ingredients and our broader portfolio. Throughout the process, we remain focused on long-term shareholder value and taking actions that make the most strategic sense. Now on Slide 11, I'd like to share our outlook for 2026. We believe we are well positioned for the year ahead, and we are cautiously optimistic that we can deliver growth, margin improvement and cash flow generation this year.

As we navigate the volatile geopolitical landscape and uncertain market conditions, the strength of our pipeline and the benefits of our reinvestment efforts give us confidence moving forward. We believe our outlook reflects a balanced consideration of both current market conditions and the potential for unforeseen opportunities and challenges throughout the year, hence the ranges we are providing. Coming off a solid year we had in 2025, we expect to continue to drive financial performance across the company. For the full year 2026, we expect sales to be in the range of $10.5 billion to $10.8 billion, representing comparable currency-neutral growth of 1% to 4%. We believe Taste, Health & Biosciences and Scent will continue to drive our top line growth, supported by new wins and our innovation pipeline. We expect that growth will primarily be driven by year-over-year improvements in volume.

From a profitability standpoint, we expect to deliver full year 2026 EBITDA between $2.05 billion and $2.15 billion, representing comparable currency-neutral growth of 3% to 8%. It is important to note that we will also continue to selectively reinvest in the business while maintaining a disciplined focus on near-term profitability.

We expect our productivity and efficiency gains will fully fund our ability to reinvest in innovation and commercial capabilities across our highest value businesses. We believe these investments will continue to enhance performance, strengthen our competitive position and deliver attractive returns over time. For the full year, we expect FX will have approximately 1 percentage point positive impact to sales and a negligible impact on EBITDA. From a calendarization perspective, our year-over-year comparisons are strongest in the first half, particularly in Q1, where we have certain favorable onetime items from last year, including the contribution of divested businesses. As a result, we expect sales and EBITDA will be more muted in the first quarter of 2026.

More specifically, we expect modest EBITDA growth in the first quarter versus our like-for-like first quarter 2025 base of approximately $505 million, adjusting for divestitures. As we move through the year, comparisons will ease, and we expect performance to improve, supported by our pipeline and ongoing productivity actions. We expect that this will drive improved leverage across the P&L and year-over-year growth should progressively improve each quarter.

As I said earlier, operating cash flow will be a key priority for 2026. We expect overall cash generation will improve year-over-year, excluding Reg G and onetime costs, which will most likely be higher than 2025 as we pursue a potential sale of food ingredients. Teams across the businesses are driving working capital improvements across inventory, payables and receivables. And when combined with profitability growth and lower incentive compensation payouts, we should see a meaningful cash flow improvement versus 2025. CapEx is expected to be around 6% of sales, and will be carefully managed, focused on highest return opportunities, including capacity expansion, network optimization and innovation to support long-term growth.

To further embed disciplined cash management, we've introduced an incentive compensation metric for 2026 tied to operating cash flow conversion, defined as EBITDA minus CapEx minus the change in net working capital. We are also evaluating additional cash flow metrics for our long-term incentive program to strengthen alignment on cash flow generation, particularly for 2027. With that, I would now like to turn the call back over to Erik.

Thanks, Mike. As we look ahead to 2026, I see considerable opportunities for us to continue strengthening IFF with even more competitive, innovative and customer-focused businesses amid a continued challenging macro environment. Innovation is the key driver for us in 2026. Our investments in enzyme capacity, naturals, health and new molecules powered by our biotechnology and AI capabilities will increase our ability to compete and win with our customers across key business segments. We also remain focused on enhancing our competitiveness in our health business by strengthening commercial execution through the steps we discussed before. In Fragrance Ingredients, we continue to shift our portfolio toward higher growth and higher value-added specialties by leveraging R&D, naturals, chemistry and biotech for new molecule and delivery system development.

At the same time, we are committed to continuing to drive significant productivity, furthering our digital transformation and advancing our AI-enabled operational excellence to fund reinvestment and improve margins. And we will drive cash flow as a priority over the next 18 months and are committed to a very large reduction in below the line or Reg-G costs over that time period.

Lastly, we'll continue the sale process for Food Ingredients and will ensure the right outcome for this terrific business and be able to achieve our end goal of having 3 high-value and growth innovation-driven businesses with taste, Scent and Health & Biosciences powered by nature and biotechnology. To close, I want to reiterate that the IFF businesses are strong and performing well. We are doing exactly what we said we would do, and we have a clear path forward that aligns and motivates our people to continuously improve our service to customers and deliver for IFF. The progress we've made in strengthening the foundation of our business, balance sheet and innovation and commercial pipelines is significant and motivates us to do even more.

And while I'm very proud of what our team has accomplished, there is more we will do as we will be laser-focused in 2026 on driving profitable growth, cash flow improvement and maximizing value creation over time. We are investing for the future, and we have a great team to execute for today. Thank you, and we'll now open the line for questions.

[Operator Instructions] And the first question will go to the line of Kristen Owen with Oppenheimer.

So I wanted to ask about your assumptions around price and volume in 2026. And we're hearing from a lot of the CPGs, this shift toward a greater emphasis on volumes. I'm just trying to think about how that migrates upstream to you all? And just as a related question, can you remind us the incremental margin on volume versus price?

Yes. Thank you, Kristen, for that question. I'll take it. First of all, our expected growth for 2026 is volume driven. And as you mentioned, CPG companies shifting emphasis to more volume growth, that is a good thing for IFF and the industry as a whole. So we like seeing that trend, as you mentioned. And then finally, incremental margins are roughly 30% to 35% on volumes, depending on the business segment.

Our next question will go to the line of Nicola Tang with BNP Paribas.

Sticking with a question on top line. I was wondering if you could provide some color on your assumptions behind the top and bottom end of your 1% to 4% currency neutral sales outlook? Do you expect all of your divisions to grow within that range? And also, I noted in Q4 that sale -- currency-neutral sales came in better than expected in the 3 core divisions. I was wondering if we should read this as a signal of improving underlying market trends or whether there were specific drivers to be aware of, I don't know, new wins or timing of orders or anything like that?

I'll take this one. Nicola, thank you for the question. As I think about 2026, I think we'd say we're cautiously optimistic going forward, really driven by a strong pipeline and the reinvestment we made over the last 18 months. In addition, as Eric just said, we are hearing customers talk more about volumes for 2026, which is a good thing for us as well.

And so when you think about our 1% to 4% guidance range, it assumes essentially the current market conditions that we see today and as we exited the fourth quarter. For us to achieve the higher end or the 4% range, I think we would need to see volumes at the end market improve more broadly and kind of return to what I'd say is more normalized levels in terms of market growth. And the opposite is probably true on the lower end of the guidance range or the 1%. To your point on Q4 2025, it was marginally better than we expected from a top line perspective with good improvements in taste, scent and H&B. This was primarily driven by new wins, which is a positive signal, but it's only 1 quarter.

So as we think about, again, 2026 overall, we do believe that the 3 businesses will grow in 2026 within the kind of sales guidance range, but we also do expect Food Ingredients will also grow maybe just a little bit to a lesser extent overall. Fortunately, we have a very diverse business for balanced region, category and customer exposure. And that gives us our confidence that we are resilient and that we believe we can grow as we go into 2026.

Our next question will go to the line of Patrick Cunningham with Citigroup.

In Food Ingredients, could you comment on any early interest in the sale? Were there any inbounds prior to the formal process? And then any details on timing and deployment of proceeds would be greatly appreciated as well.

Sure. Thank you for the question, Patrick. As I said on our last call, we did have early interest from both strategics and private equity firms, and all of those firms continue to show strong interest. And then 2 weeks ago, we officially launched the sale process and have had additional firms express interest. So I'm very optimistic about the process.

But as Mike said, the Food Ingredients business is performing well, had double-digit EBITDA growth last year, continue to see solid earnings growth for this year. So we will only sell the business if it creates value, but I'm very optimistic we can make that happen. Now as for proceeds, we will use them to buy back shares to offset as much dilution as possible, and we will pay down debt to stay about where we are on debt-to-EBITDA ratio, ensuring that we stay below the 3.0 target.

Our next question will go to the line of John Roberts with Mizuho.

Price was down in the Scent segment. Higher price fragrance outperformed -- Fine Fragrance outperformed Consumer Fragrance. You're shifting the Scent ingredients towards higher-priced products. So I would have thought mix alone would have improved price. What's going on with price there?

Thanks, John. You're correct that the Fine Fragrance business is our highest margin business. So that was a positive contribution to mix overall. Pricing actually in the quarter was flat year-over-year. And so really, the margin pressure came on the input cost side, where you -- as you know, there is a bit of a lag in terms of overall price. This was primarily related to some of the index pricing agreements that we have.

And so similar to previous years, as we move forward, we expect to fully recover this over time. One of your points on just the Fragrance Ingredients business overall, that shift from more commodity to more captive or proprietary ingredients, we started that migration, but it will take some time. And so as we go through 2026, we will make continuous progress. But I do want to just level set to make sure that's something that will be a theme as we go through 2026 and as we get through the second half. that's where we'll start to see some stuff come online overall, but it's a process that will take somewhat of all of 2026 to make that migration overall.

Our next question will go to the line of Kevin McCarthy with Vertical Research Partners.

I thought your Health & Biosciences business finished on a somewhat stronger note. Can you elaborate on what drove the margin uplift there of 160 basis points year-over-year? Is the health business starting to stabilize and come back at all? And maybe you could comment on the margin outlook for 2026 in that segment, what kind of benefits you might anticipate from volume growth and productivity?

Sure. Thanks for the question, Kevin. First of all, our Health & Biosciences did deliver strong fourth quarter performance, and that was due to both strong volume growth and productivity that enhanced the margins. What I would say is the team is very focused on strengthening our commercial and innovation capabilities and pipelines and delivering those pipelines. And I'm very proud of the progress that they're making. More to do, but making progress.

As Mike mentioned in the beginning comments, the health business still had some decline, less decline than in the third quarter -- in the fourth quarter. We see that business flattening out in the first half of this year and then starting to grow in the second half of this year. So outside of the health business, very robust growth. The health business is starting to turn, and we expect it to see positive results from that by the second half.

Our next question comes from the line of Josh Spector with UBS.

I wanted to ask on free cash flow. I think previously, you thought for 2025, you'd do a little bit less than $500 million. That came in a couple of hundred million short. You talked about some investments in inventory. So can you talk about why you did that? Is that structural? And then how do you think free cash flow evolves into 2026?

Thanks, Josh. Great question. Yes, we expect the free cash flow to be modestly lower than $500 million for the full year. Essentially, the difference of where we ended versus our commentary in the second and third quarter really related to 3 things. One, we did see a little bit of an increase in what I'd say is onetime Reg-G related costs. as we start to move forward with the food ingredients potential sale, we've actually seen some step-up in costs associated with that potential transaction.

Number two, exactly what you said, working capital came in a bit higher than we expected. Part of this is driven by inventory. Now while the team made a really good effort and progress in terms of where we were in the first half of the year to the second half improving inventory, we are being strategic on some elements where we're taking advantage of supply and potential pricing to making sure we keep adequate inventory that as we grow our business into 2026, we're in the best possible position. And so that was a little bit of a build. But in addition to that, we also had some payables that are really just timing issues. I think as we go through 2026, we'll see that come back now overall with respect to AP. As I explained in our prepared remarks, cash flow improvement for us in 2026 is a key priority. And while we do expect the Reg-G costs will remain high, we are being very disciplined in terms of cash management now.

To the point I made earlier in my prepared remarks, we even added the compensation metric in there to drive this. And so for 2026, I do expect to see meaningful improvement driven by profitability growth, working capital, lower interest expense and a lower payout relative to what we had in 2025 with respect to incentive comp overall.

And so that meaningful progress will occur. I'm going to refrain on giving a specific target at this point only because I want to get a little bit more clarity on the food ingredients potential sale. I think once we have the visibility there, we will come back and we'll give more formal guidance on a cash flow number. But I will tell you that what I can confidently say is that we are doing everything we can in our power to making sure we drive cash flow performance in 2026.

Yes. Let me just add quickly that while the overall performance of the company was very solid in 2025, I'm not as proud about the management of inventories. In the first half of the year, we let inventories get higher than we had targeted. Mike had us put a lot of emphasis in the fourth quarter on driving down inventories. Which is never a good thing to do quickly at the end of the year, but we did it. And we've put in -- Mike has driven, with the business unit president, a much better disciplined process to ensure that we manage inventories well throughout '26 and for the future.

The next question will go to the line of David Begleiter with Deutsche Bank.

Erik just on the R&D effort, where do you stand on this journey to reinvigorate the R&D pipeline and your innovation efforts? Are there any metrics that you're tracking that you can share with us on this progress?

Thanks for the question, David, and it gets right to the heart of the key strategy of the company is to drive innovation. So as you remember, we invested about $100 million in 2025 into our innovation capabilities in high-growth, high-margin categories across the company. And we've made a lot of progress across Scent, Health & Bioscience and Taste innovation pipelines. And as I also mentioned earlier, we'll start to see the benefits of that in the second half of '26 and more into '27.

And I think we're really pleased with the progress that we're making. I think our customers are very pleased with it. I just came back from ACI, the American Cleaning Institute, where we engaged with many of our large CPG company customers, and it was really great to have those engagements and hear about the progress that our teams are making.

And it was also a very big honor to get awards from 2 of the largest CPG companies for our innovation together with them, which I think bodes well for the future. So making good progress, David, and you'll see it more fruition in terms of real results starting in the second half of this year and then much more into '27.

Our next question goes from the line of Ghansham Panjabi with Baird.

Just going back to the Taste segment for the fourth quarter and the performance in North America specifically, I think you called out high single-digit growth. Can you just give us a bit more color as to what drove that? And then was that the component that drove margins to the degree that it did, just from favorable mix specific to North America?

Thanks, Ghansham. Taste team is doing a really good job overall in terms of their overall performance. When you look at it from a regional perspective, all regions in Q4 grew contributions from both volume and price.

When we look at the drivers of growth, really what stood out is North America, and that's really driven by new wins. And so the team has been really, really focused on making sure they grow their pipeline and increase their win rate and what you're starting to see it materialize was some of the success that they had on some of those launches overall. In addition, Latin America was strong. And then we -- when I balance it out, I think about EMEA and Greater Asia, they grew, but to a little bit of a lesser extent.

And so when I think about the margin performance, the largest contributor was really productivity. And so when you actually look across COGS and SG&A, the team did an excellent job of really trying to drive that cost management and making sure we're driving productivity within the system of their business.

So that was a big success to the overall performance and profitability. In addition, they also did have some positive contribution from favorable net price to input cost. And so when you shape this up between volume growth, plus good productivity and some favorability with respect to price to input cost, that shaped up to a really nice quarter from a profitability perspective overall.

Our next question will go to the line of Lisa De Neve with Morgan Stanley.

I had a little bit of a question on what is IFF's view on the GLP-1 theme where we've seen a little bit of a resurgence of the theme post the oral dosage approvals? I mean, can you share about what you believe the GLP-1 uptake will mean for IFF solutions demand? And then more broadly following on from that, across all your divisions, I mean, what would you consider to be like the key market trends that will drive your growth over the coming years?

Thank you for the question, Lisa. And being on the Board of Eli Lilly, I've got a front row seat to the GLP-1 dynamic. And I'm very proud of how our IFF team has responded to this, both challenge and opportunity. And what I would say is we're creating it into an opportunity, and we've had an alliance across our business units putting together how our products can help our customers develop great products for GLP-1 consumers.

And we have put together an innovation seminar that was very well received and have many projects with customers around products for GLP-1 users. And as you can see in our taste and our Food Biosciences performance, they're both growing very nicely, and some of that is due to the GLP-1 dynamic. And I'll give you an example. We have a large business today in yogurts. We've developed some new yogurt technology, both in biosciences and in flavors. And by taking advantage of that, we've been able to grow nicely in the yogurt category, helping our customers grow nicely and address the desire for GLP-1 patients to have really great tasting foods that are good for them.

But it's also gone beyond that in the protein dynamic and the ability for us to flavor products with high protein and help with the biosciences to enable those products has also been a positive. And then when you talk about ultra-processed foods or reformulation, generally reformulation when customers reformulate, that's also a good thing for us.

So yes, there will be some challenges with reduced caloric intake for a section of the population, but we're leaning into it with innovation to make sure that it's not an overall negative for us that it's a neutral or a positive.

Our next question goes to the line of Fulvio Cazzol with Berenberg.

My question is on the cost inflation outlook for 2026. I was just wondering if you can give us a bit of a summary of what you expect, both on the input costs, any tariff-related cost inflation, wage inflation and how you expect to mitigate that?

Thanks, Fulvio. For 2026, we do expect some modest input cost inflation for our divisions. This really includes raw material costs, which includes the impact of tariffs, plus logistics, energy and packaging costs more broadly at a higher -- at a very higher level macro statement, we're seeing inflation across kind of all those key elements. The team today is collaborating with customers to mitigate this.

And in the end, we will recover it through reformulation, productivity and pricing over time as we go forward. And so when we think about our guidance for 2026, taking a step back, our 1% to 4% is really all driven by volume. We do expect pricing to be slightly down, which is primarily related to the commodity portion of our Fragrance Ingredients, which I mentioned earlier on a different question and some residual carryover pricing impact in food ingredients specifically. But the team is really focused on making sure, as I think about our business going forward, we're working with customers that where there are inflationary pressures, we do offset that from a direct cost perspective.

More generally, there is a general increase in terms of overall working costs, so merit increases, inflation that we've done a very good job at looking to productivity to make sure that we're fully offsetting that as part of our plan. So that's embedded in our gross productivity plan to make that a net number more favorable as we progress through the year.

Our next question will go to the line of Laurence Alexander with Jefferies.

Just want to circle back to the outlook, the lower end of the outlook range. What are you assuming for destocking risk this year compared to the last couple of years? And then I guess related to that, it looks as if kind of the range isn't yet seeing much benefit from kind of the shift in mix and innovation capabilities and sales force reinvigoration. When do you think you should see the bottom end of the range start materially improving?

So thanks for the question, Laurence. Of course, the 1% to 4% does include Food Ingredients. And while we expect Food Ingredients to return to positive growth on top line this year, it will be modest. And as Mike mentioned, it's still a tough macroeconomic environment, especially in the first half with difficult comparisons.

But we expect the second half to be better as our innovation further kicks in and builds to '27 and hopefully better market dynamics. What I would say is we can't predict geopolitics and market dynamics at the end of the year. So any potential destocking at a reasonable level to the -- towards the end of the year is built into our guidance, and we expect to achieve somewhere in the range of 1% to 4%. Of course, we're driving for as best as we can, but that's the range that we're confident we can deliver.

Our next question will go to the line of Salvator Tiano with Bank of America.

You mentioned a lot of things about essentially, product inflation being offset by productivity, et cetera, and generally mitigate a lot of the headwinds that you may face on the cost side. I'm just wondering though, when we look at 2025 on your incremental margins, you had 2% organic growth and 7%, I guess, like-for-like EBITDA growth. This year, the guidance is calling for quite high organic growth, and the range is not -- the midpoint of EBITDA growth is much lower, so say, 5% to 6%. So based on all this, what is actually driving lower incremental margins this year versus 2025?

Sal, great question. Eric, I'll take this one. Yes. This is again, real specific on just the incremental margins. As we think about the guidance range, take a step back. I always think that the quality of this business is that as you grow your business, you do have nice leverage within the P&L. And so when I think about falling from sales to EBITDA it's usually around 2x, right? So if I grow 4, I can get 8 in terms of leverage within my P&L. Obviously, the higher we grow, right, we start moving towards the 3, 4, 5 range over time, then that's when we'll see the best leverage within the P&L overall. When you're at the lower end of that, then it becomes a game of how do we actually continue to drive productivity to making sure we're supplementing some of the lack of what I'd say is volume, fixed cost absorption overall.

And so as we think about the range for next year, the 1% to 4% of the cost, obviously, if we're at the lower end of that range, then really we need to think about stepping up the productivity even more so to making sure we get that leverage to fit within the portfolio, and we do have opportunities to do that. And then as we get to the higher end of the range, then I think then we have a little bit more flexibility.

What's built into the guidance range very candidly are 2 things. One, it's a bit of reinvestment that we're funding through productivity overall, which normally some of that productivity could help support and drive bottom line, but we are being conscious and we're being smart about how we want to continue to reinvest in the business as we make the migration towards '26 and then into 2027. So that is a little bit of what I'd say is the offset when you think about the flow-through from the incremental margin piece. It's really the volume growth is critical.

Productivity is driving supporting depending on if you're at the lower end of the range or at the upper end of the range. And then the third point is really around how do we take a step back and just making sure the reinvestment is balanced to how our performance is and our productivity is overall. So those are the 3 levers that we're managing for 2025.

And then the one thing I would just add to that is that the reason -- one of the reasons for our heavy focus on innovation is that as that innovation pipeline come through, we do expect margin benefits from that. So that's really an important part of it as well.

Our next question comes from the line of Lauren Lieberman with Barclays.

Great. I wanted to talk a little bit about reformulation opportunities in particular and just how that -- what you're seeing in the marketplace in terms of customer demand, specifically around reformulation to more ingredient profile, health and wellness concerns, et cetera. And then also how equipped your portfolio is today to meet those demands, should they be there? And then how much of that is also fitting into your innovation and R&D plans?

Thanks for the question, Lauren. First of all, we're seeing continued reformulation happening but it hasn't picked up as much as some people have talked about the importance of ultra-processed foods and some of the dynamics that you're hearing about. But as it does and if it does, I think that's all positive upside to what we've been talking about because every time customers reformulate, whether it's for lower sugar, lower salt, lower fat, less -- cleaner label, whatever it is, that's opportunity for IFF. So we welcome that and hope to see it increase from here. But as of now, it's out there. It's happening. We're working with customers to create healthier products, great tasting products, more sustainable products. I think you'll see some really sustainable products coming out with some of the CPG companies that we've been working with outside of food, but also in food.

So I think there's still this dynamic everywhere of wanting more innovation to bring consumers what they want, whether it's great-tasting food or laundry products that clean the clothes really well with room temperature water and less water and less plastic and many of the dynamics that you hear about out there that consumers desire and CPG companies are trying to drive innovation to meet those desires to grow the -- profitably grow their business, we're there to help.

Our next question will go to the line of Mike Sison with Wells Fargo.

I guess with the sale of Food Ingredients pending, how do you sort of pivot the company to more of a growth mode? Historically, IFF has slightly overperformed to FNF peers, but if you think about the portfolio going forward, the Health & Biosciences and Scent and Taste, how do you get that growth rate to match the peer group or maybe even outperform the peer group?

Thanks for the question, Mike. I'm very excited about the future of IFF. I think as we finalize our portfolio optimization and focus all of our efforts on scent, taste and Health & Biosciences, very R&D heavy, very innovation heavy, really attractive businesses that have a major impact on consumer goods whether it's food or others, home and personal care, et cetera, and represent a small part of the cost, but a big part of the superiority. And so as we focus all of our energy on that and have finished the work on portfolio optimization, I think we'll go from strong to stronger. And absolutely convinced that we've got the right team in place, that they are strengthening our capabilities. You can see it in our performance. We're doing what we say we're doing. We see the commercial pipelines increasing. We see the innovation pipelines increasing. We see the quality of the projects with our customers improving. And that's why we're very confident in the future. And also, the other element here that's really exciting is we've got a very healthy Health & Biosciences business with really strong capabilities in biotechnology that is important for all the segments that we play in Health and Biosciences, it's also starting to impact beneficially technology in our Scent business and our Taste business. I'll just give you a couple of quick examples. In 2025, we launched ENVIROCAPS, which is a biodegradable encapsulation technology for our Scent business. It's commercial now.

Several very big customers have been using it and say that it's working extremely well, and they're very pleased with it, and that's growing. We have other scent technologies that are using biotechnology that are now in the pipeline and are coming. We have a number of taste products that we've developed with our biotechnology capabilities and more in the pipeline.

I'll give you one example of one that's commercialized now. It's called Super Carrot, where you take the residue of carrot production and you fermented it with our enzymes and you create an Umami flavor that is healthy and replaces Umami flavorings with something that food companies and consumers really like. And so we'll see more of that. So I just -- I fundamentally believe as we get to be a focused, high-value R&D innovation-driven company with a stable portfolio that we're investing in, you will see us accelerate our growth.

Our next question will go to the line of Jeff Zekauskas with JPMorgan.

Your Food Ingredients EBITDA and operating income dropped off pretty sharply in the fourth quarter. And I think you said that the price trends are negative. So given the slow volume growth environment, is the case that operating income and EBITDA for that business next year is higher or lower? And can you speak generally to the tax basis of that asset?

So I'll start and then Mike can add to the tax basis. The fourth quarter was not a great quarter for our food ingredients business. They did not deliver what they expected to deliver. There's a number of reasons for that. All I can say is the first quarter looks like it's off to a solid start. Andy and his team, Andy Muller and his team are highly confident that they can get back to top line growth. although it will be low single digit, it will be top line growth and continued significant earnings growth. They've got the projects to do that. There's a lot of excitement with some launches that they've made recently and some exciting areas. So what I would say there is that the fourth quarter was not what we expected, was not what they expected. But the full year was still very solid with -- although it was negative revenue growth with double-digit EBITDA growth, and we expect to get back to positive revenue growth and continued strong EBITDA growth in 2026.

Our last question will go to the line of Chris -- go ahead.

Sorry, Megan. Just -- I think, Jeff, you had a question on the tax base that if we had a potential deal for Food Ingredients. And -- we still -- obviously, we're still working through that process. So we've got to kind of see where we're landing and where we're heading from that perspective. Fortunately, we're in a good position with respect to tax attributes that could be leveraged to minimize some of the tax leakage that we have now. And so the team is fully focused on making sure the net cash number maximizes its value for shareholders. And so that's what the team is focused on overall. But more to come as we progress from here.

Our last question will go to the line of Chris Parkinson with Wolfe Research.

Just circling back as a corollary, a couple of questions on the H&B segment. You clearly had a solid result across volumes in the Biosciences segment as well as a better margin. When we take a step back and look at some of the health and probiotics, I think you were alluding to it before. Last year, we were talking a lot about obviously, market share kind of investments in the business that were necessary overall for the intermediate to long term.

Is it safe to say that you're still investing in that business? And then you already mentioned the half-on-half trends, which I appreciate. But can you just talk about how should we should think about spend in that business in the context of the productivity gains you're gaining? And then also if you actually still believe you're going to gain share kind of the second half '26, '27, '28. So any updates there in terms of the moving parts would be particularly helpful.

Sure. Thanks for the question, Chris. First of all, overall Health & Biosciences business is doing very well. Leticia Goncalves has been in the job almost a year now, and she and the team are -- they've got a great team with a great strategy and are executing it well. Health is the only area that has not delivered strong growth in 2025. Interestingly, outside of North America, the growth was solid. It was inside North America where the challenges were. There's a number of reasons for it.

But what I can tell you is Leticia has brought in new leadership. The team is strong. We believe in the business. We've got great capability. We've got a very attractive pipeline coming that I believe with the capability that we now have will start to deliver growth again in the second half of this year, and then you'll see nice growth in '27.

But I firmly believe in this business. I just think it's a really important thing for the world, and we've got the capability to succeed. We took our eye off the ball for a while in North America. We've got our eye back on the ball, and you will see the results come like everywhere where we've seen we've had challenges. We get the right leadership in place, the right teamwork, the right support, and we get it on the right track, and that's going to happen in health as well.

Thank you, Chris. That will conclude our question-and-answer session. I will now turn it back over to you, Erik, for closing remarks.

Well, thank you all for joining today's call. We are working hard to unleash the great potential of this company. As we've talked a lot about, we've done a lot of portfolio optimization following the Frutarom and the DuPont Nutrition & Biosciences deal. We're getting closer to exactly where we want to be. I think we'll make really good progress on that in '26.

And then we'll still deliver strong results in '26, I believe firmly, but we'll be very, very well set up for '27 and beyond as we move through this finalization of the portfolio optimization and really drive the innovation aggressively across Scent, Taste and Health & Biosciences. We've got a terrific team, we've got a clear direction and we're going to make it happen. Thank you.

That concludes today's call. Thank you for your participation, and enjoy the rest of your day.

At this time, I would like to welcome everyone to the IFF Third Quarter 2025 Earnings Call. [Operator Instructions]

I would now like to introduce Michael Bender, Head of Investor Relations. You may begin.

Thank you. Good morning, good afternoon and good evening, everyone. Welcome to IFF's Third Quarter 2025 Conference Call. Yesterday afternoon, we issued a press release announcing our financial results. A copy of the release can be found on our IR website at ir.iff.com. Please note that this call is being recorded live and will be available for replay.

During the call, we'll be making forward-looking statements about the company's performance and business outlook. These statements are based on how we see things today and contain elements of uncertainty. For additional information concerning the factors that can cause actual results to differ materially, please refer to our cautionary statement and risk factors contained in our 10-K and press release, both of which can be found on our website.

Today's presentation will include non-GAAP financial measures, which exclude those items that we believe affect comparability. A reconciliation of these non-GAAP financial measures to their respective GAAP measures are set forth in the press release. Also, please note that all the sales and adjusted operating EBITDA growth numbers that we will be speaking to on the call are all on a comparable currency-neutral basis, unless otherwise noted.

With me on the call today is our CEO, Erik Fyrwald; and our CFO, Michael DeVeau. We will begin with the prepared remarks and then take questions at the end.

With that, I would now like to turn the call over to Erik.

Thank you, Mike, and hello, everyone. Thanks for joining us today. IFF's third quarter results demonstrate continued execution. Our performance this quarter shows that we continue to make progress towards our goals, operate with efficiency and discipline and further strengthen our financial position. In a more challenging environment, we are doing what we said we would do as we expect to deliver financial results in line with our full year guidance that we outlined in February. We will do this as we continue reinvesting in our business and advancing our growth strategy while driving productivity.

I'll start today's call by briefly summarizing the third quarter, and then I'll talk about some of the key strategic progress we have made so far this year. And then I'll turn it over to Mike DeVeau, who will provide for a detailed look at our results and segment performance in the third quarter, in addition to our outlook for the remainder of 2025. We will then open the call to answer your questions.

Turning to Slide 6. We are seeing encouraging results as we build a stronger IFF. Through the actions we've taken to strengthen our customer focus and enhance productivity, IFF is improving its position to compete effectively and deliver value for all our stakeholders. We're operating in a dynamic environment with ongoing macro headwinds, geopolitical challenges and market uncertainty, influencing our customers and end consumers, plus we had a strong 9% comparable from last year. We anticipated this and have been clear that the second half would likely be more challenging than the first, and even so, sales remained steady, holding flat for the quarter.

Our Scent and Taste businesses both continued to deliver solid growth in the third quarter, which helped offset softness in Food Ingredients and short-term pressures in Health and Biosciences. As I spoke about last quarter, most of the H&B pressure was related to expected slowdowns in the Health business isolated to North America. To address this, we are investing to increase innovation and expand our commercial capabilities to ensure IFF is set up to address the needs of customers now and in the future.

We continue to remain focused on what we can control in the current environment. IFF delivered strong adjusted operating EBITDA growth of 7% this quarter with a margin that improved by 130 basis points. Our focus on profitability continues to bear fruit as our results demonstrated strong profitability even in this lower growth environment. I am particularly encouraged as we are also doing this while our teams are reinvesting into our core businesses to position the company for long-term success.

On Slide 7, I'd like to share some of the exciting strategic progress we've made in the first 9 months of 2025. Earlier this year, we opened a Scent Creative Center in Dubai, a Citrus Innovation Center in Florida and expanded our LMR Naturals site in Grasse, France. All are significant initiatives that will further advance our innovation offerings and strengthen our go-to-market capabilities. Our customers are at the heart of everything we do, and these strategic investments are increasing our commercial pipeline that will start to bear fruit in mid- to late 2026 and into 2027.

We also deepened our commitment to innovation through external collaborations. We recently announced an exciting strategic collaboration with BASF to drive next-generation enzyme and polymer innovation, including our Design Enzymatic Biomaterials, or DEB, technology. This partnership enables us to develop more market-driven solutions that create sustainable value for both industry and the environment.

Also, earlier this year, we announced a joint venture with Kemira to provide high-performance sustainable alternatives to fossil fuel-based ingredients, also utilizing our DEB technology. Applying this technology not only provides superior purity and consistency compared to traditional biopolymers but also enhances performance across various applications.

We are already seeing commercial applications of this technology as we also announced that a major multinational CPG company has launched a new laundry detergent formulation enhanced by DEB technology, which delivers improved fabric softness and cleaning performance while replacing nonbiodegradable ingredients with a readily biodegradable alternative.

In addition, during the year, we reduced our leverage significantly, reaching approximately 2.5x net debt to EBITDA. After strengthening our balance sheet, we announced on our second quarter call a $500 million share repurchase authorization, making an initial move toward a more balanced and disciplined approach to capital allocation. Over the past few years, we have made significant progress streamlining our portfolio, which has allowed us to reinvest in our core business, achieve our deleveraging targets and strengthen our financial flexibility.

During 2025, we made significant progress on this as we completed the divestitures of Pharma Solutions & Nitrocellulose and announced the divestiture of our Soy Crush, Concentrates & Lecithin business to Bunge, which is aligned with our margin enhancement strategy. We continue to evaluate potential strategic alternatives for our Food Ingredients business as we look to drive our portfolio optimization strategy. While we do not have any additional information to share today, we are making very good progress, generating significant interest, and we'll keep you updated as we make further progress.

On a year-to-date basis, we've delivered sales growth of 2% and achieved adjusted operating EBITDA growth of 7%. This is primarily due to the immense efforts of IFFers all around the globe, continuously striving to innovate, deliver results for their customers and communities and elevate everyday products used by millions of consumers worldwide.

With that, I'll pass the call over to Mike to offer a closer look at this quarter's consolidated results. Mike?

Thank you, Erik, and thanks, everyone, for joining us today. In the third quarter, IFF delivered revenue of nearly $2.7 billion, led by mid-single-digit growth in Scent and low single-digit growth in Taste. Our sales were flat against a strong 9% comparable and were up approximately 4.5% on a 2-year average basis.

We continue to focus on driving EBITDA growth through disciplined execution and margin improvement initiatives. In the third quarter, we delivered adjusted operating EBITDA of $519 million, a strong 7% increase. Our adjusted EBITDA margin also increased 130 basis points to 19.3%. Also worth noting is that our operational improvement plan continues to yield results in our Food Ingredients business.

In the third quarter, Food Ingredients delivered a strong adjusted operating EBITDA margin improvement of 230 basis points compared to last year. The team has done an excellent job on improving the margin profile over the past 2 years, where they increased adjusted operating EBITDA margin by over 400 basis points and are on track to achieve their mid-teen EBITDA margin profile.

On Slide 9, I will share additional details about this quarter's performance in each of our business segments. In Taste, sales increased 2% to $635 million with strong growth in Latin America and Europe, Africa and the Middle East. On a 2-year average basis, growth remained strong at approximately 8.5%. The segment also delivered profitability gains of roughly 2%, driven by favorable net pricing and cost discipline.

Our Food Ingredients segment achieved sales of $830 million, down 3% versus the year ago period with strong growth in inclusions that were more than offset by softness primarily in Protein Solutions. As I mentioned, Food Ingredients had an excellent quarter in terms of profitability, where the team delivered adjusted operating EBITDA of $106 million, a 24% increase year-over-year.

Our Health & Biosciences segment achieved $577 million in sales, which was flat versus the prior year. On a 2-year average basis, growth remained solid at approximately 6%. Growth in Food Biosciences, Home & Personal Care and Animal Nutrition was offset primarily by expected softness in Health, specifically in North America.

In this market, we've improved our leadership team, placing a strong emphasis on commercial and marketing capabilities. Their objective is to leverage our strong R&D pipeline and win with a broader set of customers to capture strong growth potential in that market. And while the fourth quarter will remain a challenge, we expect trends to improve in 2026. In the third quarter, H&B adjusted operating EBITDA grew 3%, driven primarily by productivity.

Scent delivered a strong quarter of sales growth with net sales of $652 million, up 5% year-over-year. On a 2-year average basis, growth remained strong at approximately 7%. Third quarter performance was driven by 20% increase in Fine Fragrance and a low single-digit performance in Consumer Fragrance. As expected, Fragrance Ingredients was under pressure and declined low single digits as growth in Specialties were more than offset by declines in Commodities.

As a reminder, we are strategically shifting our Fragrance Ingredients portfolio towards higher growth and higher value-added specialties. We will do this by leveraging R&D and biotech for new molecule development. Our goal is to accelerate the pace of our captive releases to ensure we can differentiate ourselves and grow disproportionately in this margin-accretive business. Within Scent, volume growth drove the segment's $135 million in adjusted operating EBITDA, a 6% increase year-over-year.

Turning to Slide 10. Our cash flow from operations totaled $532 million year-to-date, and CapEx was $406 million or roughly 5% of sales. Our free cash flow position in the third quarter totaled $126 million. This year, we have paid $306 million in dividends through the end of the third quarter, and our cash and cash equivalents was $621 million. As of quarter end, our gross debt was approximately $6 billion, a roughly $200 million decrease from last year and more than $3 billion decrease year-over-year.

Our trailing 12-month credit-adjusted EBITDA totaled roughly $2.15 billion, in line with last quarter, while our net debt to credit-adjusted EBITDA remained constant at 2.5x. We will continue to be disciplined in our capital allocation priorities. Reaching our deleveraging goals was a strong achievement, and we are now focused on preserving this foundation through operational performance, specifically driving improvements in profitability and net working capital.

Lastly, on Slide 11, I will walk you through our outlook for the balance of the year. We have talked today and in prior quarters about the environment in which we are currently operating. Our touch points across our global business and with our customers have allowed us to forecast this year well as our teams are delivering results in line with the guidance ranges we communicated in February.

Based on our year-to-date actuals and expected fourth quarter performance, we are reiterating our full year 2025 guidance. As a reminder, we are expecting sales to be in the range of $10.6 billion to $10.9 billion and adjusted operating EBITDA to be between $2 billion and $2.15 billion. On a comparable currency-neutral basis, we expect to finish the year at the low end of our 1% to 4% sales growth guidance range as shared last quarter and near the midpoint of our 5% to 10% EBITDA growth range.

We believe that this is the right call to maintain our full year guidance even with a wider range implied for the fourth quarter. It is consistent with the message we have shared all year, which is staying focused on what we said we would deliver even in a challenging environment. For the fourth quarter, we expect our typical seasonality resulting in a step down in absolute sales and margin. And as a reminder, we again face another strong comparable versus the prior year with 12% growth in Taste, 7% growth in Scent and 6% growth in H&B.

With that, I would now like to turn the call back to Erik for closing remarks.

Thanks, Mike. Taking a look at the year so far, our global team has delivered in a difficult environment with revenue and profitability increasing year-over-year. I'm proud of what our team has accomplished, yet we continue to strive for more. We are continuing to serve our customers with excellence while investing in an exciting innovation pipeline and positioning IFF to deliver stronger profitable growth on a sustained basis.

We are focusing on what we can control. Our strategy is clear. Our team is executing, and we have confidence in our ability to deliver increasing value for our shareholders and all stakeholders. I know we are building a stronger IFF that will be well positioned for 2026 and beyond.

Thank you, and I'll now open the call for your questions.

[Operator Instructions] The first question is from the line of Fulvio Kazal with Berenberg.

It's in relation to the Health and Biosciences business. I was wondering if you can provide a bit more color on what's exactly going on in the North America region for the Health business unit. I know that the decline in Q3 was well anticipated, and you highlighted this at the Q2 results presentation. But I was also wondering if you still expect to see an improvement starting in 2026 or if there is more uncertainty today on the outlook for this business compared to, say, 3 months ago?

Thanks for the question, Fulvio. This is Erik. In Health and Biosciences, the Health business in North America has been slow for us. And what we've been doing to turn that around is we've put in place new leadership with strong commercial and marketing capability. And you'll recall last year, we step changed our investment in innovation pipeline in Health. That's going well. We're connecting with our existing customers to help them grow faster, and we're finding new customers to serve in North America. So bottom line is, I absolutely expect to see improvements, particularly in the second half of '26 going into '27 and then a full recovery, fully back on track in 2027.

The next question is from the line of Nicola Tang with BNP Paribas.

I wanted to ask about the top line guidance. The bottom end, so the 1% currency-neutral growth implies a negative low single digit for Q4 versus the flat year-on-year that you did in Q3 despite slightly easier comps. What are the main headwinds to top line in Q4? And how much of your cautious outlook relates to the weak end market macro-geopolitical trends that you referred to versus IFF-specific exposures? And to what extent do we need to see end market recovery to see a top line acceleration in 2026?

Great. Nicola, thanks for the question. Yes, you are correct. While comparable is 6% in the fourth quarter, which is down from 9% in the third quarter, we are being a little bit more prudent on our top line projection this quarter. The largest part of this, the driver of this, is really the macro environment. And so when you look at the end market demand, specifically on volumes, you'll see in the food and beverage category in HPC, it has been soft. And so we did as we kind of continued this trend through the balance of the year just to make sure that we're fully forecasting it correctly.

In our core portfolio, Erik touched on it, and I think I touched on it in our prepared remarks as well. We continue to work on Fragrance Ingredients and Health North America. And so the team is making good progress there. We still got a little bit more work that we have to do to really get back to recover, as Erik suggested. I do want to note, though, as a point of reference, in these areas when we put the two businesses together, it's about 5% of our total company sales. So it's small in nature, but a lot of emphasis and attention on that going forward.

So as we move into 2026, we are cautiously optimistic that we will get to a point where we'll see growth acceleration as the market does normalize and some of the self-help work that we're doing over the last 18 months start to yield results.

The next question is from the line of David Begleiter with Deutsche.

This is Emily Fusco on for Dave Begleiter. On Food Ingredients, are we still on track for an update on this business with the Q4 earnings call in February? And also just a follow-up, have you begun to engage with private equity and strategics on this business?

Thanks, Emily. Absolutely, you'll get an update, and I'll give you a quick update now. We are seeing strong interest by both private equity and strategics. And fortunately, the business transformation that Andy Muller is leading with his team is on a strong track, which obviously is very helpful to this process. This is a very good business. It keeps getting better and has a bright future, and we'll update where we are in February.

The next question is from the line of Lisa De Neve from Morgan Stanley.

I have one question. Could you please reiterate your free cash flow outlook for this year and the confidence of how we should expect the different free cash flow components to move into the fourth quarter and if you expect to see an improvement? That's my first question.

And I have a small follow-up on previous question. You talked about investments in H&B. Could you please remind us of where specifically you're making the investments notably if you're opening any new plans in certain regions.

Sure. So maybe I'll start on the cash flow question. Thanks, Lisa. In terms of the free cash flow expectation for 2025, we do expect to be modestly below our target that we gave early in the year, which was about $500 million. There are some puts and takes in there that are worth noting. On the positive side, we are expecting CapEx to be a bit lower as we've implemented a little bit more structured policy just given our cash flow generation. So that's a good guide, a positive aspect.

There's two offsetting factors to that, one being inventories are higher in some areas of our business. Part of this is around building some strategic stock in some key areas to take advantage of current cost and availability of materials. And the second piece of it is really around some of the Reg G or onetime costs are elevated really because of the portfolio work that we're doing overall. And so when we put those two together, I think it gets you kind of be a little bit modestly below that $500 million.

But I do want to note that in terms of overall net working capital, you will see an improvement in the fourth quarter and it is a big focus for us as we go into 2026. And so there is an opportunity for us to improve our free cash flow generation, which is in our control, and the team is committed to making strong improvements as we go forward. So maybe that's the cash flow. Erik, I'll pass it over for you,

Sure. On Health & Biosciences investment, as we said last year, we've significantly increased our spend in R&D and commercial capabilities both for our Health business, next-generation probiotics and other products as well as our enzyme business and our DEB technology. We've announced and we're making great progress that we're building a DEB plant together with Kemira, with our joint venture called Alpha Bio. And it's on track, and we expect to start that up in 2027 and look forward to that. But significant investment into Health and Biosciences, and we see that starting to pay off, as we said, significantly in the second half of 2026 and very strong into '27.

The next question is from the line of Kristen Owen with Oppenheimer.

So I wanted to ask about the new wins that you cited in both Taste and Scent. We continue to hear about how challenging the volume backdrop has been. So I'm hoping you can elaborate on what contributed to those wins in this backdrop.

Thanks for the question, Kristen. Obviously, there's economic challenges across the businesses, especially in North America we see right now. But in all our four BUs, including Taste and Scent, we've got a heavy focus on strengthening our commercial pipeline, really strong focus on customers and increasing our win rate as well as our innovation pipeline. And we're seeing really good progress across segments, across businesses and across geographies.

And just to give you a couple of examples of wins in Scent and Taste. The first one is our new environment -- excuse me, our new ENVIROCAP scent encapsulation technology was recently commercialized in laundry with a major CPG company. The performance is great. They're very excited about it and the sustainability benefits are tremendous. So we'll see that technology add to our growth going forward.

And then a second example I really, really like is we've been successful winning Miu Miu by L'Oréal Fine Fragrance from our master perfumer Dominique Ropion. And that's going to be a nice business for us going forward, a great product, and I think we'll do well in any economic scenario that we see. So good progress on our commercial pipeline, our innovation pipeline and things that we can control by bringing great technology innovation to customers, and that's how we're going to grow these -- continue to grow these businesses.

The next question is from the line of Salvator Tiano with Bank of America.

You spoke a little bit about 2026, hopefully growth accelerating a bit. But can you also mention any other major or discrete items that you see affecting your income statement or your cash flow next year versus 2025?

Yes. Thanks, Sal. Great question. We are, to be fair, in the middle of the planning process for 2026. So we can't go into much details. We'll provide the full guidance update as part of our year-end or Q4 call in February for 2026. That said, in terms of moving parts, there's probably just one that I just want to remind everybody. I think it's pretty self-explanatory. But if you remember, we closed the pharma transaction on May 1.

And so when you think about 2026, I think through the first 5 months of the year, 4 months of the year, it was about $369 million in sales and $76 million of EBITDA. So that will go away as we cycle down in the first half of the year. So I flagged that. In terms of the rest of it, it is pretty normal course in terms of operations. So there's not really any big discretionary items that we flag at this point in time.

The next question is from the line of Ghansham Panjabi with Baird.

Erik, can you just give us an update on the internal initiatives you have going on as it relates to both cost optimization and growth? You called out capacity being tight in certain areas in the past. I know you answered the question on Health and Biosciences, but what about across the rest of the portfolio?

And just on the cost savings side, as it relates to productivity, et cetera, can you give us a sense as to the savings that is likely to flow into 2026 in context of just the operating environment not being very helpful?

Yes. Thanks for the question. I'll have Mike go through the details here.

Yes. Appreciate it, Ghansham. Over the last 18 months, we've done a lot of work to improve our competitiveness as an organization. And so specifically, Erik has highlighted specifically around the H&B Health business that we put a lot of money in terms of R&D and commercial capabilities starting really in the second half of '24 and over the course of 2025. And that's really to bolster some of the innovation pipeline to strengthen again the commercial capabilities.

In addition, we've also increased and will continue to increase our CapEx in the areas to improve capacity, specifically in H&B, where we think we have a good growth potential and really good incremental margins associated with that. And so that's something we've done and we'll continue to do as we go forward from here in that business to really generate the value there.

As we go into 2026, we believe we're positioned well and we are cautiously optimistic that it will lead to improved growth trajectories going forward. At the same time, we're also working on just generating better incremental productivity that comes with improving margins going forward as a focus. And so I don't want to go into too much of the details here. Again, we'll come back in February when we give our overall guidance.

But I think the team has made a tremendous amount of progress both in reinvesting, really tried to get the growth aspect of it and targeting incremental productivity opportunities to continue to expand margin and reinvest in the business as needed through a self-funding mechanism. So we feel good about the progress being made.

The next question is from the line of Patrick Cunningham with Citigroup.

This is [ Alex ] on for Patrick. I guess, we're hearing more about the economy taking a K shape, where lower income households are spending less. I guess I'm wondering if this is something you're seeing across your business segments and maybe what that implies for volumes in 2026.

Thanks, Patrick (sic) [ Alex ]. Yes, we are seeing some of this and we talked to the weakness overall in volumes in North America. But the good news is we've got a diverse customer base both in size of customers, geography base and categories. And we're adapting our focus around the world.

And just to give you some examples. On the lower end and private label area, we're seeing growth and we've put more emphasis on that. On the high end, the Fine Fragrance business continues to do well. So we've put a lot of emphasis on making sure that we're a partner of choice in fine fragrances, and we talked about the Miu Miu with L'Oréal. Very important for us. We're seeing geographies even in fine fragrance like the Middle East growing very rapidly. We're putting more emphasis there. We opened a creative center there.

And we continue to obviously stay focused on ensuring that we do well with global key accounts, but also increasing our emphasis on regional and smaller customers in geographies that are fast growing. So yes, there's a K-shaped economy more today than there was before, but we're adapting our model to make sure that we grow at or ahead of the market going forward.

The next question is from the line of Josh Spector with UBS.

I wanted to try again a little bit on '26 and just thinking about really the range of scenarios and your ability to respond and specifically that if we stay in this kind of, call it, 1% growth environment maybe from a consumer perspective, do you have actions and levers that you think would deliver earnings growth higher than that, be it self-help or other things in flight that we should be considering?

Yes. Great question, Josh. I'll take this one, if that's okay. Growth is an important part of the algorithm. And so the more growth we get, the incremental margins associated with that growth in terms of fixed cost leverage, it's nice. So the more you can grow, the better you are. So that's ultimately what we're striving to, which is why some of those reinvestments were so important to make sure we accelerate the growth.

At the same time, you do need to prepare that if the event that the market is still in that 1% to 2% range, how do you work on your cost structure to ensure you generate profitability improvement. We are fully focused on that. The team has done a very good job over the last couple of years to drive productivity. But it's something that is paramount now as we go forward to continue to do that. And so areas like streamlining corporate functions, leveraging automation, redesigning processes, that will allow us to be more effective and more efficient.

And so I do believe we still have some opportunities there. There is contingency planning associated with that. So as we think about the context going forward, we will include that areas to accelerate to make sure we maximize profitability as we go forward even in a lower growth environment.

The next question is from the line of John Roberts with Mizuho.

Have we been seeing any acceleration in the reformulation of food products? And is that maybe part of the reason for the continued strength in the Flavors business?

We haven't seen a big shift yet. What I would call it is a continued move towards cleaner labels and reformulations for that, which we like. And if that accelerates, that's good for us. But what we've been doing is following what our customers and consumers want, which are cleaner labels. And we've got a very strong capability both in Scent and in Taste and Naturals and that's played well for us. And that's why you're seeing growth because of our focus on the innovation, but also on our commercial capabilities to help customers delight consumers.

Yes. Maybe just to add on that. When you look at it, John, the pipeline has actually improved and continue to improve. And so what that's a good barometer is that the customers are looking for more innovation, which is very good for our business overall. So I think that's the buoyancy that you've seen over the last couple of quarters within Scent and Taste overall, which has provided a bit of tailwind there.

Yes. As the customers see lower volume growth in the market, they're pushing for more innovation to be able to profitably grow themselves. And we're there to help.

The next question is from the line of Kevin McCarthy with Vertical Research Partners.

This is Matt Hettwer on for Kevin McCarthy. Would you comment on two items: a, the potential pace of execution against the $500 million share repurchase authorization that you announced last quarter; and then, b, the expected cash proceeds from the pending divestiture of the deal with Bunge?

Sure. Thanks, Matt, for the question. In terms of the share buyback program, we actually started or commenced on October 1. And so that was per our trading plan. And so that now have been implemented. As a reminder, the program is geared towards dilution plus model, which means at a minimum, our plan to target offsetting dilution which, for us, on a yearly basis, is about $80 million. Then we have some flexibility based on intrinsic value, free cash flow generation that we can increase or decrease the purchases within the trading grid.

So we do have some of that flexibility. But as you think about modeling for the fourth quarter, just given that we started on October 1, I would assume at this point, we're offsetting dilution, which is the $80 million divided by 4, essentially, which is call it about $20 million. We will give more update as we get to the guidance call in February, but that's kind of part number one.

I think part number two, your question was the expected proceeds of the pending deal with Bunge. In terms of gross proceeds, I think it's about $110 million in gross proceeds. And I would estimate around $90 million in terms of net cash proceeds after tax and some of the deal fees associated with it.

The next question is from the line of Lauren Lieberman with Barclays.

I had two questions, actually. First was on Taste. In the slides, you mentioned you had favorable net pricing. I'm just curious if that's comparable to what peers are doing. I was surprised to see that there was positive pricing in this environment. So that was the first question.

And the second one is if you could just offer any observations on growth of multinationals versus local and regionals and also the pipeline, sorry, just the pipeline activity from those two subsets.

Sure. So maybe, Erik, I'll start on the taste piece of it. The team has really done a good job. And so when I think about the net pricing comment, Lauren, where there's areas of inflation, and one area there is some tariff inflation that we get, the team has done a really good job of offsetting that as part of their pricing areas. At the same time, it's a net pricing number.

So in terms of the inflationary environment that we've seen throughout 2025, which was about low single-digit inflation, the team did a really good job of productivity to drive some of those costs down. And so when you combine productivity with the raw material cost exposure and the pricing strategy, that's how you got your net pricing benefits there. And so I think I can't speak to the competition, but I can speak that the team has done a very good job at executing on that piece of it. In terms of the global versus local and regional, Erik?

Yes, we're seeing the regional and local is growing faster, and we've put more emphasis on growing with them and accelerating our pipelines with them. But the global key account are still critically important to us, and they're increasing their focus on innovation so our pipelines with them are very strong and robust. So we're not decreasing emphasis on global key accounts, but we're increasing our focus on the regional and local.

The next question is from the line of Laurence Alexander with Jefferies.

Can you give us some color on what your customers are telling you about inventory levels and their patience on reformulation? So what I mean is, yes, are they seeing the evidence that reformulations are driving significant organic growth acceleration? And if not, how long will they keep reformulating before they switch to other ways to protect earnings and cash flow in a slow growth environment?

Sure. So maybe I'll start. Erik, feel free to add on. The inventory question is a good question, Laurence. I think when you get into a slower growth environment, specifically with some of the global accounts, you always have to make sure the inventory management aspect doesn't have the impact on the business. I think based on the feedback that we've heard from the team, there are some markets. Very candidly, like North America is a little bit higher inventory level. So I think embedded in our forecast is a little bit of a deceleration in that market specifically because of inventory levels.

Broadly speaking, if you take a step back, inventories feel like they are in a good spot globally. But like I said, there are some markets like in North America that there could be some inventory management that could potentially happen there. So I think that's part number one.

Part number two, in terms of the patience -- I think your question around patience of reformulation, it's an opportunity. And so when you look at the customer set, over the last several years, pricing has a big part of their algorithm. And so really, and I think Erik just alluded to it, to really differentiate yourself in a market where pricing becomes more challenging in the overall market, innovation becomes a key part of the driver going forward.

And so I don't think you're going to see them throw up their hands and say, innovation is not important. And I think they're going to continue to make sure that is a central part of their algorithm going forward. And for us, that's a good thing because we like the portfolio, we like the R&D that we have. And we're focused on that. And so I think those are the two I would give, Erik. I'll ask you if there's anything.

The only thing I would add then is on the inventory side. There's a lot of uncertainty with our customers, and they're trying to operate with lower inventory levels. So we absolutely can and will do a better job of managing our inventory levels, but we're also trying to make sure that we're not missing order opportunities. But we're really trying to stay close to our customers and understand what their needs are so that we're able to operate with lower inventories, but not miss any delivery reliability goals.

The next question is from the line of Silke Kueck with JPMorgan.

When you look at 2026, what do you think are the bigger product launches? So the collaboration with BASF sounds that there are like product opportunities on the detergent side. And is that something that will affect Consumer Fragrances in Scent? Or is that something that we'll see in the enzyme category under H&B.? That's my first question.

Secondly, the beverage can companies have spoken about growth in like protein-enriched beverages, like protein being added to essentially like everything. Is that an opportunity for IFF? And again, is that something -- when it's beverages, do you see that as like a Taste opportunity? Or because it's protein, will that shop in H&B?

And my third question is you talked about regionals and locals growing faster than multinationals. Does that mean private label is also growing faster? And how do you approach going after the private label business?

Well, thanks for those questions, Silke. I'll try to take them one at a time, and Mike, please pitch in any time. So let's talk, first of all, about the BASF collaboration. I think it's really important. BASF has a very strong position in chemistry with many home and personal care companies. And we've got a very strong capability in enzymes and have very good positions with a number of customers but haven't reached the broader market as well as we would like to.

And so the combination of us plus BASF's really strong commercial capability, our enzymes and their chemistry is, we believe, a very strong opportunity to serve customers better for both of us. So we'll see that play out and it should start to see enzyme growth towards the end of '26 but more in '27, I would say. And with that, we'll improve our relationships and connections with customers' percent.

On the protein movement, I would say it's very strong and it obviously helps our protein business were the leaders in plant-based proteins, which are very much in vogue and desired, less so in the alternate meats. That is rebased and growing but of a smaller base.

But certainly in beverages, bars and other areas, and we see growth opportunities for our protein business, but also for our broader food ingredients business to make sure that the protein drinks and other products have the great mouth feel, the right taste, don't settle out -- the protein doesn't settle out and, very importantly, the taste, the flavors, which gives us an opportunity to go in with protein and other Food Ingredients capabilities and bring more total solutions to customers that -- or at least open the door for not only our Food Ingredients people but for our Taste capabilities.

So this protein dynamic, I think, was strong and is further accelerating with the GLP-1s, and we see that continuing and we see us well positioned. And we're already seeing good growth from it.

The last one was on the regional and local. Yeses, private label is increasingly important. That's back to the K economy. And we're putting more emphasis on working with the private label retailers but also the co-manufacturers who make the products and making sure that our capabilities are helping them achieve what they want to help.

The next question is from the line of [ Evertz ] with Wells Fargo.

I know this was touched on already, but I wanted to push a little bit further on Fine Fragrance. You obviously reported 20% growth this quarter and double-digit growth last quarter. It's been growing very strongly. And I know you mentioned wins, but I'm wondering if there's something else in underlying trends driving this growth?

And then looking forward, is this a level of growth that we should expect going forward? I know you mentioned upside from your scent centers in Dubai and Florida bearing fruit in mid- to late 2026. But how should we think about this next quarter or this coming quarter and then the first half 2026?

The Fine Fragrance business has shown tremendous growth rates. I don't expect to have that stronger growth going forward, but I do expect continued solid growth from Fine Fragrances. And I think that's because of our capabilities. We've got great perfumers. We've got great molecules. We've got significantly enhanced investment in innovation that's going to be coming more into 2026 and '27. And we've invested in places like Dubai creative center and creative centers in other parts of the world, Shanghai and others.

And so we are absolutely committed to this market and we absolutely want to serve our customers to help them have great products. But I think another dynamic here is the whole social media dynamic, where you're seeing influencers really starting to -- or have been and, I think, will continue to expand the marketplace, expand to new generations, to not only females but more to males, a younger generation and more diverse groups. And I think that's fueling the growth and we see that continuing.

The last question is from the line of Christopher Parkinson with Wolfe Research.

This is Harris Fein on for Chris. I mean, there's been some solid year-on-year margin comps in Food Ingredients. Just wondering if you could maybe talk about the line of sight to bridge that margin to the mid-teens next year. And we're also all looking forward to the strategic update early next year. But in the interim, maybe if you could talk about any opportunities you have to prune, maybe more along the lines of what you did with the Soy Crush business in the interim, that will also be helpful.

Harris, thanks for the question. Look, I think the Food Ingredients team has done a fantastic job really emphasizing margin improvement. And so just kind of bringing it back, if you remember, at the lows it was about 9% EBITDA. So the trajectory now, it was 9%, 12%, moving towards 14%. If you adjust our portfolio, it gets towards that 15%. And so the line of sight is actually pretty strong in terms of overall recovery, and the team has done an excellent job.

As they go forward, what's really important because not only do we divest business, we were also very strategic in, I'd say, ongoing pruning of our overall portfolio. So we're very selective. So some of the lower-margin businesses, we kind of walked away, which is embedded in some of our top line performance this year in 2025. I think so as you go in -- but as you go into 2026, the more growth you can get into that business and return to growth, that's where you get nice leverage with the P&L. So that's kind of priority number one, it's how to get the business back towards that growth number, so one.

Two, we started basically 2 years ago on a big productivity push. And so looking at plant optimization, raw material optimization. The team has done a good job, and that's a big driver of what you're seeing in the performance in 2025, but that also continue into 2026. And so between those two levers, I think you still have a line of sight to continue to improve that business both from a top line perspective but also from a margin perspective. I think again you'll get back to that mid-teen, and the team is focused and fully focused on that as they drive going forward.

And I'll just add one other thing is we are investing where we see high profit margin growth opportunities. For example, the TAURA Fruit inclusions business segment is we're expanding the capacity significantly there. The current capacity is sold out, high margins, high growth. So Andy and his team are really driving also growth in the higher-margin areas.

Thank you. There are currently no questions registered at this time. So I'd like to pass the call back over to Erik for any further remarks.

Well, thank you all for joining today's call. Let me close by saying that I'm very proud of the progress the IFF team has made over the last 18 months. We are a much stronger company with the right future. We have a solid balance sheet, a clear strategy, a strong and strengthening innovation pipeline, a strong focus on serving customers and consumers, and we're executing better and better and doing what we say we are going to do. So I look forward to the road ahead, and thank you very much.

Thank you all. At this time, this will now conclude today's conference call. We appreciate your participation. We hope you all have an amazing rest of your day, and you may now disconnect your lines.

Okay, we're going to get started. So next up, we are pleased -- very pleased to welcome back Michael DeVeau, International Flavors & Fragrances CFO. Mike, it's great to have you in your new role. I mean you've been here a million times at the conference, but first time as CFO. So congratulations again.

I wanted to just start maybe with some near-term questions. But actually, just before I do, I want to reflect a bit on where the business stands today. You've been at the company a long time. You are certainly the most tenured on the executive team, and you've been through lots of ups and downs. So what would you describe as IFF's greatest strength today and greatest areas of opportunities or opportunities for improvement?

Yes. First, thank you for having us. It's always a pleasure to be in Boston this time of the year. So thank you for that. I've been at IFF 17 years now. So it's -- and it's been a great journey. I think fundamentally, what's kept me at IFF is still true today, which is -- it's a great business, right? When you think about what we're trying to achieve on a day-to-day basis, the impact that we have on the world, super positive, super exciting. So there's an engagement aspect.

It is a business that has a limited number of competitors. It is a business that is focused on innovation and R&D. We have a very good value proposition. We're 1% to 4% of the cost of the end product, which drives a lot of the repeat purchases. So I'd say structurally, everything is really in a good spot.

Where we are today in an IFF perspective, and what excites me the most is focus prioritization, getting back to basics. It's an opportunity for us to really -- we went through an expansive amount of growth over the past 5 or 6 years with 2 big, real big deals. Now where we are as part of the portfolio, we're in a spot where the core businesses, Taste or Flavors, Scent, Fragrances, H&B are kind of the core elements of it. We're working on, which I'm sure we'll talk about on the food ingredient side, opportunities on that side of the businesses.

But where IFF -- we're #1, #2 in a lot of those key markets. So we really have a really good competitive strength. And so what we're trying to do now is we're really trying to make sure we are doing the best we can to service our customers through innovation and through R&D. That is what is the most exciting aspect of kind of the day-to-day piece of thing.

Would you think it's fair to describe IFF today as a turnaround story?

In part, to be very honest, I actually -- I'd probably say it's 80%, it's really getting back to our core values, our core business, right? How do we do things in a disciplined manner. And so for me stepping into the CFO role, and I had the fortune to work with a lot of people over the last 17 years at IFF. So I know what worked, what hasn't worked.

The beauty of where we are today and the trajectory we have Erik coming in, Erik is really big on accountability. He's really big on execution. He's really big on making sure the business is own end-to-end model, which is super important. So you have no longer across conversations, one point of contact to making sure they're driving the business results.

For me, as a CFO, it's really about return on invested capital, like how do we actually get to a point, not the mechanism we want to obviously improve that, but how do we use that to making sure the investments we're making and the areas of focus are driving the highest return pieces of it. So that's a key criteria for me as a focal point.

The second piece is really on cash flow dynamic. And so if you look and you benchmark us, we haven't had the best cash flow performance relative to where we've been. A lot of that was because of deals and a lot of divestitures. And so for me, it's how do we get more focused and how do we drive that now going forward. So there's a lot of opportunities, which we'll talk about as we go through.

Okay. So just is that closer in now? So let's just revisit second quarter earnings. Can you talk about what's changed to take your annual sales guidance down to the lower end of the range? How much of it is macro driven versus IFF specific? And if you could talk about it from a geographic perspective, that would also be helpful.

Sure. We started the year in February, we actually gave a guidance range of the 1% to 4%. So fundamentally, we reconfirmed that the last 2 quarters. The lower end of that was because of some of the uncertainty we expected to see over the course of the year. Obviously, part of it is macro driven, right? There's a lot of uncertainty in the world. We see a lot of changing news day-to-day that can have some impacts overall. And so we wanted to be -- we wanted to make sure we gave a big enough range that we can perform in any situation. So point number one.

We indicated more recently that we're going to be towards the lower end, towards that 1-ish percent part of the guidance range. And that was really driven by the fact that in the second half, we always knew that there would be a little bit of softness. But I think what happened is the macro got a little bit more pressured. I think when you look at some of the CPG volumes, you could see they're much more muted as we go forward.

And so between that, those 2 areas and then a high comp, specifically for Q3 in some businesses, we knew we'd have a pressure point in the second half of the year, which is why we've guided down towards the lower end of that range. When you look at it on a regional perspective, I think Europe and Latin America are actually doing pretty well, more broadly speaking, across all the businesses. The 2 commonalities where we see across the business is a little bit more pressures in the North America market specifically. I think all 4 divisions were down in the second quarter in North America specifically.

And in Greater Asia, there's some pockets in there that are a little bit more challenged overall. So regionally, you have a little bit of a different story depending on where you're looking.

Okay. Let's talk a little bit about -- more about Fragrance Ingredients and Health. We've estimated that those 2 businesses combined are roughly $1 billion in sales or 9% of company sales. That's correct. Need to fact check first.

Okay. So starting with Health, can you just give an overview of like what this business is? How long you've been aware of the challenges that you're experiencing within it? And when can we expect to see a step change in R&D that will help the growth trajectory?

Yes. Yes, absolutely. It's a great question. It's a key question we've been getting since the earnings call, frankly. Primarily, it's the probiotics business, okay? That's the biggest bulk of that business overall. The H&B business is a fantastic business. This is the enzymes, cultures, probiotics business. So good margins, good growth, long-term and short-term performance. So really good business.

When you double down into that business, the health business is the one area, which is primarily the probiotics business. That business has -- it's been a little bit lumpy performance. And so the CAGR of that business has been probably low single digits over the past couple of years. And when you think about the market performance, it's probably a mid-single-digit type of grower. So there is a little bit of a gap there. So we knew over the last couple of years that there was a bit of challenge points.

Specifically, when you look at it by region, China is a big market for there and North America is a big market. And in those 2 markets, there's a pressure point. In China, we see general macro pressures in probiotics market overall. So that has pressured us a bit. And then in North America market, it's a little bit better than China, but still a little bit muted. But then you have a separation. There are some customers that are doing very well and some customers that are not doing as well as the other ones.

Our position is with some customers that haven't performed as well as they should have. And so it's a little bit of a customer mix dynamic.

Fortunately, we've made a lot of changes there. We started, if you remember, Lauren, a big conversation on reinvestment in the second half of 2024. And so we started to make some investments in the health business, specifically on the R&D pipeline in '24 and continuing in 2025. That's super important because it was a $20 million investment in 2024, a $100 million investment in 2025, not all Health or H&B, but the whole business. And so we tried to make a reinvestment to build that product pipeline. Health was one big area. So the R&D pipeline that will come is going to be very, very strong. So excited about the progress we're making.

At the same time, we more recently changed some of the general manager leadership role. And so we have a new person that just has recently started that comes with great experience. She started September 1. And so a little bit more focused on marketing and commercial orientation, which will help us now making sure as we think about our customer segmentation, our go-to-market strategy, launching some of this innovation a bit stronger.

So as we go forward in the business, I actually think 2026, we should improve. And I think when we get to the back half of '26 and '27 as some of those new ingredients, we should get to a point where we're at or above market growth rates from that perspective.

Okay. So it does -- so win rate or just the natural time line that it takes for marketing, win, commercialization?

Product life cycle.

Product, so second half of '26, we could start to see some.

Yes, some of those investments we started to make in 2024 start to come now.

And come to market in the second half of '26?

Got it.

Okay. Great. And then within Fragrance Ingredients. So there, is it a case of underinvestment because it isn't really seen as a core business? Can you just talk a bit about maybe business trends? And I know that this business historically, as we've talked about it ups and downs over the years, it tends to ebb and flow a bit. So what is it -- why is that the case? What does it really take to launch new captive molecules and some of the low-cost competition that I know you're facing, isn't that always the case? So...

Yes, it's always been the case, to be fair, and there is ebbs and flows. And I think that's an important aspect because while there's some short-term pressure today, you should start to see a recovery as we go forward into 2026, to be fair in that business. So I'm not super negative on it.

The business, remember, it was built at a legacy from an IFF standpoint. And so when you look at some of the portfolio we had, we had really proprietary molecules in the '80s and '90s and early 2000s that are no longer on patent. And so the purpose of that business is basically to sell excess capacity. So we're going to market whatever we don't consume internally, we're selling externally. That is subject to competition with low-cost providers.

And so that's the more generic versions of some of our product base. And that's where we see the biggest pressure point to be clear. Where we see actually growth is on the specialty. And so stuff that's proprietary to IFF that only we have, that's on patent that we're bringing to market, those are the areas that have been performing quite well.

What we're trying to do is we're trying to shift it a bit. The more generic commodity types of businesses will probably improve as we go forward. We probably have another couple of quarters of down, which is embedded in the guidance piece of it. And then after that, we'll start to see that recover. But more importantly, we're making investments to try to change that portfolio of demographic and shift it more towards the specialties, the higher value adds proprietary to IFF. That will protect us in the long term versus more low-cost providers because it will be intellectual property remain at IFF overall.

Okay. So a little bit of underinvestment then from the standpoint that your captive molecule pace currently the smaller piece.

Yes, I think it's a focal point, right? You want to make sure you drive differentiation. The key for us as an industry overall is innovation and differentiation. And so the more ingredients, the more tools you have in your toolbox, the better you'll be. And so I think I'm not sure I'd call it lack of investment or lack of focus on some of those areas. The team is now fully focused on making sure we make that portfolio shift overall to make sure they're driving a couple of molecules every year to bring to market.

Okay. Great. And then just aside from these 2 areas, Health and Fragrance Ingredients, any other parts of the portfolio where you think IFF has been underinvested or maybe have you lost competitive edge? And if so, kind of what are you doing to fix them?

I think the portfolio actually is pretty strong. When you compare taste versus our best-in-class competitors, they've done very, very well. Same on the Scent side, agnostic of the fragrance ingredients piece of it.

On the H&B, we talked about health. I think the one area where there's a concentrated effort to make sure we add capacity, and this is why we talked about an elevated level of CapEx for a couple of years is in enzyme capacity. And so it's a really great business. And so the more fermenters we can have in the market, the more demand we can capture in there.

So when you think about the incremental returns and margins on it, very, very strong. But that's one area that we started to talk about in 2024. Part of that elevated CapEx investment in this year and the next 2 years will be related to some of those investments, more broadly speaking. And that's the one area where I think that's incrementally more than where we are today.

Okay. Great. And then on the flip side, really strong performance still from Taste and also from Fine Fragrance, well, which -- and Fragrance has been well ahead of broader end market trends. So can you discuss where the strength has been coming from? Is it new wins, existing business, local regionals versus [ global ] -- any kind of color on where this outperformance comes from?

Yes, the Taste has been broad-based, honestly. When you look at it Yuvraj, a gentleman that joined us 2 years ago, ran the Nourish business, now took over the Taste side. His entire team has done a very, very good job. Their focal point, number one was to grow their product pipeline. And so they've done a very good job. So if you look at the product pipeline size on new potential businesses, it's increased significantly.

Part number two was then, okay, now we have a bigger piece of it, how do we get our win rates up. And so they're now punching well above what I'd say is their fair share in terms of overall win rates. And so that combination, really, when you look at the performance more recently, it's new win driven.

The volume on existing business has been pretty consistent. And so the incremental growth that we have is really around new wins related to commercial performance.

In some of the categories, I think the 2 areas that stand out to me is on the beverage side and on the dairy side. Those are the 2 areas where we have the best growth performance and a lot of it is through innovation and through new wins in terms of commercial performance. So that's the Taste piece of it. U.S. Scents?

Yes. On Fine Fragrance?

Fine Fragrance. Fine Fragrance is a great success story as well. So double-digit growth for a couple of years now. And so the history, if you look at that business, it's been a little bit choppy. You have a couple of years of good and then maybe one bad and a couple of years of good and kind of you get the steady [ Eady ] growth of 3%, but it's a little bit volatile.

The team has done a really good job in 2 areas. One, I think fundamentally, the market is driven by social media. And so when you look at some of the developed markets, the trends that we're seeing from a social media perspective on layering, use of consumption, different types of applications, it's driving a little bit of buoyancy in the business. So the team has done a very good job to make sure they're winning new business there with new launches.

And then part number two, specifically in Africa and Middle East, it has been a big growth market. And so I think when you look at that business a couple of years ago, it was very small, $5 million, $7 million, and now it's in excess of $70 million. So it's had a lot of nice growth in there, and that's really around credit to the team.

The person that leads that Sabrya is running that business. She made a big investment probably about 6 or 7 years ago in Africa specifically to making sure she is first to market to partner with some of the key customers there. That -- those key customers have now grown quite significant, and that has been a bit of a tailwind that we're seeing overall.

Okay. Let's talk about food ingredients. So how much of that business is left post the Bunge deal -- that's actually -- sorry, say differently. How much of what's left is differentiated post the Bunge deal versus more commoditized? Are there parts of the business that makes sense to hold on to, to have in terms of reformulation and the parts that are used within Taste?

Yes, it's a good question. If you think about that business, it's about -- it was $3.5 billion, rough estimate, $3.4 billion. The recent transaction that we announced on the crush lecithin divestiture that we have, I think it was around $240 million that will go -- so you're kind of around $3 billion, $3.1 billion left. You have emulsifiers, sweeteners, texturants, systems that are kind of embedded in there. It is a little bit of a uniquely different business than I'd say the Flavors, Fragrances and H&B business.

It is one that is much more -- it's a little bit lower growth, higher capital intensity, a little bit more you're managing that business for fixed asset absorption than the other businesses are a little bit more value-add contribution when you think about the margin profile. So it's a uniquely different business. It is a good business, a solid business.

When you think about what's left, the team has been so focused on making the margin improvement. They went from 9% in 2024. I think they were 12% -- I'm sorry, '24, 12% in '24 -- sorry, I'm looking at a mic to check for those that are on the webcast. '24, they're at 12%. And then I think this year, they'll be in the mid-teens range once you normalize for this. So they made a fantastic improvement overall with keeping top line relatively stable.

And so as we think about the business going forward, we're trying to figure out what the connection points are for IFF. If they are limited, what do we want to do with the business overall? Fundamentally, the question that we ask ourselves strategically, does it fit in the portfolio? If it does not fit, how do we actually maximize the most value for it? And then if there is connections, how do we keep those connections tight with the rest of the business or RemainCo.

Okay. So like pros and cons of divesting the remainder, I mean, might it impact your competitive positioning with the industry? How would it change your growth profile? Would your growth profile, frankly, be more like your peer set if you did not have this business?

Yes. I mean I think when you look at it from a growth profile and probably from a margin profile, that business has been a bit of a drag in the last couple of years overall, and it's 30%, 35% of the business. So when you look at the key questions we get versus benchmarks, your benchmarks, your peers are growing mid-single digits and you're growing low single digits. The answer -- a big part of that is going to be the food ingredients business piece of it.

So I actually think if you do move away from that business, you'll see growth go up more towards your peer set, which is in that mid-single-digit range. And your margin profile should improve a couple of hundred basis points as well because again, I referenced before, a 14%, 15% EBITDA margin aspect of that business. So if that kind of moved on, RemainCo would be a bit stronger, both on top line and from a margin profile, much more comparable to the European peers.

Okay. But then competitively, in terms of your ability to reformulate compete and so on, I mean, what are the implications or...

I don't think so. I think from a competitive perspective, you try to keep the connection points that if there are areas that you want to work with, obviously, if it was not part of IFF, and we haven't made a decision, but if it's not part of IFF, then the reality is how do you make those connections and how do you keep those connections strong to support both businesses. But I think more broadly speaking, the buyers are different very candidly. And so not necessarily a core part of it. You're not going to put yourself in a deficit by not having it.

Okay. Perfect. Just turning to profitability. So when you took down the sales guidance to the lower end of the range, you didn't do the same EBITDA. So can you talk about the puts and takes to profitability and where you have more flexibility going forward?

Yes. Productivity is a big -- it's a big agenda item for us, and it will be a bigger agenda item as we go forward now. Obviously, if there's a potential divestiture as well, it becomes a bigger piece of the conversation.

When you think about productivity, it's always been part of the IFF DNA. The team has always done a good job of driving productivity across the board. More specifically in food ingredients, just to give you a couple of tangible examples, plant rationalization, procurement optimization, driving big benefits overall in food ingredients this year and will continue for the next couple of years.

On the H&B side, it's been much more about yield improvements, how do we actually extract more value out of some of the productions. But as they go forward, Leticia, new business unit President started about a year ago. She's really focused on expanding margins. And so she's doing a very similar exercise that the food ingredients team has done. And so there's a couple of hundred basis points of margin that we're trying to go after within the H&B business through some of the productivity initiatives. So that's an area of opportunity.

And then on the legacy IFF or Flavors & Fragrance piece of it, in that business, it's really around -- we call it business margin revolution, which is reformulation, looking at some of our portfolios, how do we actually get better in terms of improvements overall from a reformulation perspective. And those are driving what I'd say is business unit performance.

Then at the corporate level, to be fair, we're being focused on making sure we take out as much overhead as we can very candidly, that has lower value aspects to it. So Erik has been on stage, talked about consulting spend, some of these onetime costs, how do we actually drive that out there. We're trying to push that now going forward. So when you put it all together, the productivity agenda has been strong and will continue strong as we go forward.

Okay. How should we think about timing in terms of productivity flowing through in a way that is funding reinvestment? You talked about the big step-up in reinvestment that began toward the end of 2024. Does reinvestment run ahead of cost savings given the ground that needs to be made up competitively? Or with this productivity and reinvestment that's happening this year as we go into 2026, we kind of reach the end of that cycle?

Yes, I'd like to time it to be fair. I'd almost like to be a one-for-one deal. If we want to make any continued reinvestment, we have to generate it self-funded through productivity initiatives as we go forward. I'll be very honest. In 2025, we invested $100 million because we had a tailwind of an incentive compensation reset. And so we took that opportunity to really reinvest that back in the business and which is a significant investment overall.

So now as we go forward, absent of CapEx, because I know I talked about capacity expansion, some ERP stuff, some deferred maintenance CapEx that we have to catch up on. Absent of that, I think everything as we have going forward really needs to match. If we want to reinvest, we have to self-fund part of that reinvestment. Of course, there will be cases that, that's not the case. But the majority should be much more of a kind of a one-for-one going forward.

Okay. Great. Switching to cash flow because you mentioned it at the outset as well. So in May, you reiterated the guidance for $500 million in free cash, and that included CapEx around 6% of sales. Does that still hold? If it doesn't, kind of what's changed?

No, still holds. I think there's some ebbs and flows. To be fair, in the second quarter, you see the inventory get a little bit higher because demand came down a bit. We're taking all the actions to be more blocking and tackling on payables, receivables and inventory. So I'd say net working capital, we're trying to make second half improvements. Some of the Reg G-related charges, divestiture taxes, we had some benefits. So there's some moving parts. But broadly speaking, I still think we'll be in that $500 million range for this year.

Okay. Great. So maybe some more strategic kind of medium-term question. So IFF and your peers have been performing better than multinational customers, right? And we've talked about that being because of the exposure to local and regional players. How does IFF's exposure to this basket of customers compare to your larger peers -- to your other peers?

I think for the most part, it is pretty similar. There are some puts and takes. Some of our peers in Scents may have a little bit more exposure on the local regional side than we do. We're probably a little bit stronger on the global nature. And so the team has really done -- Ana is stepping in long term better in IFF, stepping in as the business president role about 2 years ago, is really focused on trying to get that expansion with some of those local regional players in some key markets around the world. So that is a focal point for us in that business.

On the Taste side, it is pretty consistent. I think you'll see it's about maybe 60% is going to be local regional within that business. And so the team has done a good job. I think that's pretty consistent overall. And I would say it's probably at the similar level, Novonesis versus the H&B side, with maybe a little bit of a caveat that on H&B, we need to get our emerging market presence a little bit stronger in some areas. And that was part of the reinvestment that we had in 2025.

Okay. And a few years ago, you talked about building up this Tastepoint business as a way in the U.S. to cater to smaller customers. Is that still...

Yes.

Okay, that's -- okay. Does it make sense -- maybe you could explain what that is. But -- are you able to replicate that across other businesses or geographies?

Yes, yes. So Tastepoint was born out of 2 acquisitions we made -- I'm forgetting the year, but it was probably almost 10 years ago now. David Michael and Ottens, 2 small Philadelphia-based flavor houses. Essentially, what we did is we purchased them, we combined them together and created a Tastepoint model, specifically geared towards smaller customers in private label.

And so what we did is we bifurcated the business at our South Brunswick facility in New Jersey. We made that much more global center in terms of creative center and manufacturing plant. And on the Tastepoint side, that new Tastepoint model was really geared towards smaller customers. Why that's important is pack size, speed of execution, quality standards, everything that's associated with different businesses. We felt we had incremental market share to gain if we can serve them uniquely different.

It's been a very good success story for IFF overall. We've expanded that model on the Taste side to now Europe and Greater Asia over the last couple of years. So it's now spread. So I feel like they have a really good blueprint on it. The Scents team is now starting to have more conversations about that profile. Haven't gotten there yet, but we're starting to think about how do we have a similar type of model for the Scents side, specifically in North America as an opportunity going forward. So more to come, but it's an area that we're trying to recreate.

Okay. Great. Let's talk about reformulation, a huge topic. So many food companies have already been talking about phasing out synthetic colors by '26, '27. I want to talk a little bit about the practicalities of that. So I know IFF's own natural colors business is very small. I think you guys said around $50 million in sales. Can you scale that up if need be so you can participate in this big industry trend?

I don't think it's a core business, very candidly. It's a part of a business, but the reality is for us, scale, I think we're probably less than $50 million to be candid. So we're not a meaningful player in it. There are opportunities that we can benefit, but I think those opportunities are probably on the fringes, -- a bit smaller. So when I think about that going forward, that's not a focal point at least for us right now as we go forward.

Okay. So let's think maybe more broadly in terms of reformulation around other elements of ingredient profile. So maybe first talk about how IFF has benefited in the past from regulatory changes in other regions.

Yes. I mean just one quick example and I worked on in the past in the previous role I had at IFF. Legislation in Mexico around sugar reduction, right? So there was an opportunity to say, you had to reduce your sugar consumption in Mexico. And so what we did is we work with some of our customers to say we have a sweetness modulation platform on the taste side.

And so what allowed us to do is have them reduce their sugar concept, avoid a duty charge by using some of our technologies in terms of modulation. So there was a market that existed. It was amplified through reformulation and allowed us to capture more than our fair share in terms of market share, but also wallet in the grand scheme of things.

Similar type of phenomenon in Europe. So these regulation changes, I know some people get concerned aspect of it. The beauty of the business and candidly, the industry is that we have the opportunity to compete on various ends of the spectrum. And so when reformulation is not necessarily a bad word, we see as an opportunity as we go forward because we have right people that can figure out solutions to help them achieve that.

So I think it could be a net positive from here in some of our legacy businesses as we actually work with our customers to get healthier, better-for-you types of products to market as they think about innovation.

Okay. And if color is the, let's call it, the most visible catalyst for reformulation at the moment, even if it's not a core business for you, does reformulation to swap out color give you opportunities on reformulation as part of that process because everything changes. If you can put color...

It opens the formula. There could be opportunities that if we're not the incumbent that we can compete on more briefs. And that's part of the project pipeline that I was talking about is actually pretty high. And some of that's coming through some of those reformulation efforts more broadly speaking.

Okay. Do you think for the industry that because of this discussion around reformulation ingredient profile that, that's a catalyst for faster growth for the industry over the next couple of years?

I think it's solution-oriented approaches, and I don't mean bundling of solutions. I mean how do we work with our customers in some of those areas that are going to be challenged. It could be an opportunity and a bit of a tailwind, frankly speaking, as we compete on some of that stuff.

So I do think it's an opportunity. Again, that reformulation, opening up briefs, those are opportunities for us to compete. We want to compete. We have one of the best teams in the industry. So how do we actually use that team to compete, that gives you an opportunity to do that overall.

Okay. Great. Switching to financial targets in our last -- sorry, CFO. So it's been a few years since IFF has given specific medium-term financial goals. Don't worry. I'm not expecting you to give them today. But if you could help us frame kind of what underlying specialty ingredients market growth is within the categories in which you compete and what that should look like in the medium term?

Yes. Maybe I'll just kind of unpack them, if that's okay, by business. I think when you look at the Scent side, it's probably a market growth of 2.5% to 3%, depending on which category you're talking about.

On the Taste side or Flavor side, you're probably in that 3% to 4% market growth range. On the H&B side, market growth somewhere between 4% and 5%, again, depending on the category.

On the food ingredients side, again, it can vary at the sub businesses, but it's probably constant year-over-year to some growth, to be candid, 0 to 1 is as I think about the market aspect.

As we think about our portfolio, you have that as a foundational piece of market. We obviously want to do better than market. We aspire to be the best we can be. And so -- when I think about the peer set, where they're targeting on some of those businesses, mid-single digits on some of those areas are viable options, viable targets for us.

Now we still need to do the portfolio work, which is why we have not given more formal long-term targets to it. Once we're done with the food ingredient assessment and decisions have been made, then obviously, we'll have the conversation on more longer-term targets. But if you break the businesses independently, you're probably Taste, Scent, you're probably in that mid-single-digit range and to be candid, H&B as well, maybe a little bit higher than that as you go forward. So that's the way I would think about the business kind of independently of the consolidation piece.

Okay. Perfect. And then any thoughts kind of conceptually on EBITDA margins? We've looked at EBITDA margins at your closest comps, as Erik suggests is the best path. So that would imply something like a 23% to 24% margin. But -- is there anything you'd point out why -- things we should be aware of when we run this benchmark analysis, maybe like IFF H&B margins be comparable to Novonesis or not, things to just build in more nuance to the benchmarking.

Yes, it's a great question. Fundamentally, Erik is absolutely right. We should be in that low 20-ish range, kind of absent when you start looking at head-to-head competition piece and kind of remove the food ingredients piece to it. Probably nothing on the Taste side. I think it is pretty comparable versus the bellwether there, who was a very good bellwether, and that's where we aspire to be.

The Scents side, there is a little bit of difference in portfolio. We obviously exited our Lucas Meyers cosmetic business. So Active Beauty or beauty care cosmetic active business is no longer part of the IFF portfolio and is on some of our competitors. And so if you look at the best-in-class within that business, they probably have 100 to 200 basis points of incremental margin associated with that. So you kind of normalize for that because it's not a one-for-one compare.

And then on the H&B side, you mentioned one of the competitors in Europe as well, who's a fantastic competitor. I think part of it is this year, that business, if you remember, last year was a 30% EBITDA margin business. We reallocated our corporate allocations and brought it down to a 26% business. So a little bit self-inflicted and created a bigger gap.

The reality is based on where we sit today, there are some differences in terms of some scale benefits that Novonesis very candidly has, which is driving that premium and EBITDA margin. But that's not to say we can't get several hundred basis points improvements in that business. And that's our focus.

Our focus is not to be at the 39%, their long-term targets. Our focus is to be better than we are today. But we see a pathway going forward that over a couple of years, we can move that progression much higher than where we are today. But there is a little bit of a structural difference between that business and our H&B business, specifically in gross margin.

Okay. Great. One final question. Just given your tenure at the company, given how much change there has been even just in the -- I've lost track of time, 1.5 years since Erik's been CEO.

Yes.

Right, about 1.5 years and enormous changes in the executive team, right? So I guess, you may not know, but like what percentage of the leadership roles you say are people who are new to the company in the last 2 to 3 years? And how do you feel about the level of talent today versus other points in your career at the company?

Yes. There's been a bit of a change at the top aspect of it from an ELT, executive leadership team. So there's various people. There is a good mix of external and internal. So myself I've been tenured. Ana was there almost -- I'm not going to say 30 years. She's going to get mad of me for that, almost 30 years at IFF. So she brings a lot of institutional knowledge.

Our Head of IT has been there for almost 10 years. So there is a lot of continuity from that aspect. And then there's some new business leaders that are bringing different points. So Andy Muller stepped in as the food ingredients person, has great experience across the industry overall, really a wealth of knowledge and is doing a fantastic job. Leticia came, again, from a -- not a direct competitor on the H&B side, but a lot of experience in the biotech space. So bringing new value add. Yuvraj came Kellogg, so got the consumer-facing background. So I actually think it's a very good mix, and we're all building off of each other. The team dynamic is fantastic. So it's something that excites us on a day-to-day basis.

When you look at the next level down, there actually hasn't been too much churn. So there's still long-tenured executives in the various businesses they work. So when I think about the talent aspect, I'm not concerned. I actually think we have a very, very strong team. We have all the right players in place. There will always be chances to move and do different things. But I actually think relative to my tenure at IFF, we have the team that is the most committed to driving the success for IFF going forward. So it feels really good spot.

Okay, great. We're going to wrap there. We can go to breakout, but please join me in thanking Mike and IFF for being here.

Thank you.

At this time, I would like to welcome everyone to the IFF Second Quarter 2025 Earnings Conference Call. [Operator Instructions].

I would now like to introduce Michael Bender, Head of Investor Relations. Michael, you may begin.

Thank you. Good morning, good afternoon and good evening, everyone. Welcome to IFF's Second Quarter 2025 Conference Call. Yesterday afternoon, we issued our press release announcing our financial results. A copy of the release can be found on our IR website at ir.iff.com. Please note that this call is being recorded live and will be available for replay. During the call, we'll be making forward-looking statements about the company's performance and business outlook. These statements are based on how we see things today and contain elements of uncertainty.

For additional information concerning the factors that can cause actual results to differ materially, please refer to our cautionary statement and risk factors contained in our 10-K and press release, both of which can be found on our website. Today's presentation will include non-GAAP financial measures, which exclude those items that we believe affect comparability. A reconciliation of these non-GAAP financial measures to their respective GAAP measures is set forth in the press release. Also, please note that all the sales and adjusted operating EBITDA growth numbers that we will be speaking to on the call are all on a comparable currency-neutral basis unless otherwise noted.

With me on the call today is our CEO, Erik Fyrwald; and our CFO, Michael DeVeau. We will begin with prepared remarks and then take questions at the end. With that, I would now like to turn the call over to Erik.

Thanks, Mike, and good morning, everyone. Thanks for joining us today. Our second quarter results reflect continued progress with growth improved profitability and divestitures that have strengthened our financial position and our net debt-to-EBITDA is now down to 2.5x. This progress shows that the steps we are taking including creating and bringing leading innovation to customers and driving operational excellence is paying off.

I will start with an executive summary of some accomplishments so far this year and then I'll turn the call over to Mike DeVeau, who will provide a more detailed look at our financial results for the second quarter and our current outlook for the rest of 2025. Then we'll open it up for your questions. On this next slide, I'd like to summarize our recent results and the progress we are making towards building a more competitive growth-oriented IFF. We achieved solid growth in profitability in the first half of 2025 and with 3% sales growth and 7% adjusted operating EBITDA growth.

I'm also very pleased that during the quarter, we completed the divestitures of our Pharma Solutions and nitrocellulose businesses and successfully completed our debt tender offering. These actions enabled us to reduce our leverage to 2.5x ahead of our target of less than 3x further solidifying our financial position. This is the first time IFF has been below 3.0x net debt to credit adjusted EBITDA since 2018. And yesterday, we also announced the divestiture of our Soy Crush, Concentrates & Lecithin business to Bunge. These products better fit with Bunge and it's another step in our focus on products with differentiated innovation that enhances margins. And this will get us closer to our mid-teens EBITDA margin goal for our food ingredients business. And as we streamline our fruit ingredients portfolio, it also strengthens our ability to continue evaluating strategic alternatives for this business.

We also announced a new $500 million share repurchase authorization to return capital to our shareholders. This Board authorization shows the confidence we have in the future of IFF and marks an important step toward a balanced and disciplined capital allocation strategy prioritizes both business and reinvestment to drive sustained growth and return of capital to shareholders. Looking ahead, we remain on track to deliver our full year 2025 guidance that we outlined earlier this year despite an increasingly challenging operating environment, and the time it is taking for the increased investments in R&D and in Health and Biosciences capacity that we started to action through last year to show up in increased sales.

We continue to focus on the factors within our control. And as we said on the first quarter earnings call, have prepared for a more difficult second half, particularly given the strong prior year comparison in the third of last year. And while we expect to be at the lower end of our 1% to 4% currency-neutral sales growth in 2025, we are confident in our ability to navigate evolving conditions respond swiftly to emerging challenges and opportunities and maintain disciplined execution throughout the remainder of the year. We have strengthening commercial and R&D pipelines that I am confident will begin to show more impact in 2026 and build for full benefit in 2027.

Before I pass it over to Mike, I want to take a moment to thank our IFF efforts all around the world for driving our progress so far this year. They've started to build positive momentum, including developing leading innovations that will show increasing value in the coming years. And they are doing this while strengthening our productivity muscle to enable us to continue to invest in growth despite increasing market challenges. With that, I'll pass the call over to Mike to take a closer look at our consolidated results for the quarter. Mike?

Thank you, Erik, and good morning, everyone. IFF delivered second quarter sales of just greater than $2.75 billion, a 3% increase year-over-year. We achieved sales growth across all our businesses, primarily driven by volume gains including mid-single-digit growth in taste and health and Biosciences. In the second quarter, we delivered adjusted operating EBITDA of $552 million, a solid 6% increase with our adjusted operating EBITDA margin increasing 50 basis points year-over-year.

Turning now to Slide 8. I will provide a closer look at our performance by segment. I'll begin with Pharma Solutions which had a strong month, delivering sales of $103 million, a 21% year-over-year increase while also recording 5% growth in profitability. As Erik mentioned, we successfully completed the divestiture of Pharma Solutions on May 1, and this will be the last time we report figures for that segment. In Taste, sales were $631 million, a 6% increase, driven by another strong quarter of commercial performance. Growth was strongest in Latin America and the Europe, Africa and Middle East region. This segment also recorded another quarter of profitability growth, with adjusted operating EBITDA totaling $125 million, a 3% increase from the prior year. Profitability gains were driven primarily by volume growth and favorable net pricing.

In the first half, taste finished with 6% sales growth and 12% adjusted operating EBITDA growth. include ingredients had sales of $850 million, a 1% increase from the prior year, driven by growth in inclusions and emulsifiers contactors. The segment also delivered an excellent quarter of profitability where adjusted operating EBITDA grew 21% with volume, favorable net pricing and productivity driving margin expansion. It is worth noting that we continue to execute our operational improvement plan to strengthen margins within our Food Ingredients business. We significantly improved profitability in the segment this quarter with a 170 basis point improvement in adjusted operating EBITDA margin finishing at 14.6%.

We will continue to drive improvement include ingredients as we move through 2025 and into 2026. Our Health & Bioscience segment grew 4% in the quarter as broad-based growth was led by strong gains in health, food Biosciences and Animal Nutrition. We also delivered adjusted operating EBITDA of $151 million, a 3% increase as volume growth and productivity gains more than offset reinvestment. Lastly, Sense also achieved sales growth with net sales of $603 million, up 1% year-over-year against a strong double-digit year ago comparison driven by double-digit growth in Fine Fragrance and low single-digit growth in consumer fragrances. Fragrance Ingredients was down as growth in Specialty Ingredients was more than offset by declines in commodities as a result of low-cost competition.

To counteract this and to build long-term competitive advantage, we are investing in new molecule development to overindex tort specialty ingredients. In the quarter, Sense delivered $130 million in adjusted operating EBITDA as profitability was impacted primarily by unfavorable net pricing due to a timing lag.

Turning now to Slide 9. Cash flow from operations totaled $368 million year-to-date, while CapEx was $274 million or roughly 5% of sales. Our free cash flow position in Q2 totaled $94 million, a sequential increase of more than $140 million from last quarter. We paid $204 million in dividends through the end of the second quarter, and our cash and cash equivalents totaled $816 million. As of June 30, our gross debt was approximately $6.2 billion, a decrease of more than $3 billion compared to the year ago period. Our trailing 12-month credit adjusted EBITDA totaled approximately $2.2 billion. I'm happy to report that we reached our net debt to credit adjusted EBITDA target in the second quarter will be finished at 2.5x.

Now that our leverage is within our target range, I would like to take a moment to talk about our focus on free cash flow generation and walk you through our revised capital allocation strategy. At IFF, we are committed to increasing our free cash flow conversion. This business is very cash generative, and we are aware of the responsibility to invest our free cash flow carefully on our shareholders' behalf. We view every investment decision through a lens of return on invested capital. This means we are focused on prioritizing capital deployment where it can generate the highest long-term returns for our shareholders.

First, we prioritize reinvestment in the highest return areas of our portfolio. Our CapEx is being carefully directed towards businesses and initiatives that offer strong value creation potential, particularly in innovation, capacity expansion, productivity and digitalization. Second, we have made meaningful progress in strengthening our balance sheet. Maintaining this new level of financial flexibility is a priority as it enables us to navigate through macroeconomic uncertainty while preserving the capacity to reinvest in the business and return capital to shareholders. Third, we remain committed to delivering consistent returns to shareholders. Our dividend continues to be a central component of our investment proposition. We are focused on maintaining and over time, growing our dividend as we grow earnings.

Fourth, today, we've launched our dilution plus share repurchase program. At minimum, this program is designed to offset annual dilution from equity compensation, which equates to approximately $75 million to $100 million per year. We also retained the flexibility to increase our repurchases as we increase our free cash flow generation and when IFF shares are trading below intrinsic value. We plan to begin our share repurchase program in the fourth quarter of 2025.

Finally, we continue to evaluate highly selective value-accretive acquisitions and strategic partnerships. We are very mindful of our challenged track record in this area, and we are committed to being very disciplined going forward. These opportunities must meet clear financial and strategic criteria, including alignment of our core capabilities, potential to expand our addressable markets and have a clear path to synergies.

In summary, as we increase our free cash flow generation, we will execute a balanced and disciplined capital allocation strategy, one that enables us to reinvest in the business, return capital to shareholders and maintain financial flexibility and strength. Above all, we will be very disciplined with our decisions guided by a clear focus on generating long-term returns.

Now turning to Slide 11, I'd like to walk you through our outlook for the remainder of 2025. As we've discussed in previous quarters, the macroeconomic environment continues to be dynamic and at times challenging. From a voluming trade policies to weakening consumer demands, we are seeing a broader set of external pressures. That said, we want to underscore that we remain confident in our ability to execute through this environment and importantly, remain on track to deliver our 2025 guidance we set out earlier this year. With solid first half of the year behind us, we are reiterating our full year 2025 guidance. We continue to expect sales to be in the range of $10.6 billion to $10.9 billion.

While the dollar ranges remain consistent with our prior outlook, it is worth noting that this now reflects modestly softer volume expectations that has been partially offset by favorable movements in currency. As Erik shared, this translates into the lower end of our 1% to 4% currency-neutral growth sales guidance range. On the bottom line, we continue to target adjusted operating EBITDA of $2 billion to $2.15 billion, reflecting currency-neutral growth of 5% to 10%. As we look ahead to the second half, we expect growth will moderate, particularly in Q3 due to a very strong year-over-year comparison. In the third quarter of 2024, we saw double-digit growth across key segments, where taste was up 15%, H&B was up 12% and Scent was up 10%, creating a high bar for comparison.

In particular, our health business had an exceptionally strong Q3 last year. And this, combined with ongoing softness in both North America and Chinese markets will present some headwinds in the upcoming quarters. And while the business will be challenged, we have made solid progress improving our innovation pipeline, and we'll continue to reinvest in R&D and commercial to ensure we grow our business at or above market, recognizing that it will take some time. Additionally, beginning in the third quarter, Pharma Solutions will be fully excluded from our results following the completion of the divestiture on May 1. As a reminder, Q2 included 1 month contribution from pharma business. So we expect to see a step down in absolute EBITDA levels in Q3, reflecting the full absence of this business.

With that, I'd now like to turn the call back over to Erik for closing remarks.

Thanks, Mike. We're just a little more than halfway through the year, and I am proud of what our IFF team has already achieved serving customers, strengthening our innovation pipeline for the coming years and strengthening our productivity efforts. And we have done this while successfully selling and separating pharma and nitrocellulose to fix our balance sheet. We know that market conditions are getting tougher and that the second half comparisons are difficult given our high growth in the second half of 2024, but we are clear on our strategy are getting stronger at commercial innovation, production and productivity execution and we'll get through this as we build strength for 2026 and beyond.

Thank you, and I'll now open up the call for your questions.

[Operator Instructions] The first question is from the line of Patrick Cunningham, Citi.

On the divestiture to Bunge, can you walk through the strategic rationale? Any dissynergies that you see and help us size the business from a margin perspective?

Thanks for the question, Patrick. This is Erik. First of all, what we sold was our soy -- or what we're selling is our soy crush, our soy protein concentrate and lecithin products. They are very commoditized. And I would say, much better run by Bunge than were being run by us. They were low single-digit EBITDA margins for us and they were distracting from our very differentiated isolated soy protein business, which now we can focus on driving the application development, the innovation in that business because we no longer have to worry about the commodities. So overall, that's going to improve our margins in the Food Ingredients business significantly and allow us to focus where we need to focus.

The next question is from the line of David Begleiter with Deutsche Bank.

Erik, just on Food Ingredients, when do you expect to complete your evaluation of strategic alternatives? And if there -- you decided to pursue a sale of this business any portion of the [indiscernible] going forward? And lastly, do you still expect that there would be strong interest in this interest in this asset amongst strategics and private equity?

Thanks for that question, David. Very important to us. And let me just start by saying, I think we're making very good progress here. As you know, we separated Nourish into Taste and Food Ingredients which I believe has significantly strengthened us in both taste and in Food Ingredients. They're very different businesses. That was step one. Step 2 was we brought in a world-class Food Ingredients leader and Andy Muller, and he's got that transformation with his team going very, very strongly, consistently improving our EBITDA margins. And then the next really important step was divesting these commodities that can't consistently achieve our margin targets and allow us to focus on the areas that can.

And now with those 3 pieces done, it's giving us the chance to really dig into what are the strategic options. And I expect that we'll be able to update you on where we stand with the fourth quarter earnings call early next year, and I believe we'll have absolute clarity in 2026 but -- and I'll just finish by saying that there's already been strong proactive interest by both private equity and strategics incoming that we can now really start to engage with as we consider our options.

The next question is from the line of Ghansham Panjabi with Baird.

I guess just stepping back a little bit on the second quarter. Could you just give us more color on how the quarter unfolded from a monthly cadence standpoint and also what your embedded volume assumptions are for the back half of the year by segment. You called out challenges. Can you be a little bit more specific as it relates to what specific challenges you're referring to?

Yes. Thanks. It's a great question. Overall, the operating environment in Q2 was consistent with what we expected coming into the quarter. And so despite some of the volatility we see in the world, all businesses actually delivered growth. When you look at it from a volume perspective, all the businesses were actually moving into positive territory. And compared to a strong year ago comparison on a 2-year basis, they actually had all had mid-single-digit growth on a 2-year average basis. So the health of the business is relatively strong from a Q2 standpoint in a more challenging operating environment.

So we feel good about that. As we look ahead, we are more cautious in the second half outlook. Part is because we're comparing and I said it in my prepared remarks that we're comparing to strong comps in Q3. It was a plus 9 last year year-over-year. So that's a tough comp. But then in addition, we are seeing some weakening trends in H&B, where we do actually expect to see some negative growth in Q3, specifically driven by health and now, Erik talked about it previously and I mentioned in my prepared remarks as well, we are taking actions to address this via reinvestment and capacity investments and confident that over time, we will accelerate growth back to market trends or above.

The next question is from the line of Josh Spector with UBS.

I was wondering if you could specifically talk about the outlook for Scent in 3Q and 4Q. You've clearly seen divergent trends between growth in end markets between Fine Fragrance and Consumer versus the ingredients, which looked like it was more of a drag. So wondering if you see that drag in ingredients continue into the back half or if that's more contained within the second quarter? And then similarly, your views around growth for some of the stronger areas you've seen in that segment?

Yes. Thanks, Josh. So maybe I'll take this one again. In Scent business overall, we expect to continue to see good strong performance in Fine Fragrance through the balance of the year. So the team is doing a really exceptional job driving their performance. A lot of it is driven by new wins and commercial performance, and they continue to be successful there. So that's a great story. In addition, on the Consumer Fragrance they're comparing to a stronger year ago comparison kind of all year. So on a 2-year basis, it looks good. But on a headline number, it's actually trending more low single digits. .

And so there's been a lot of work being done to kind of recoup and to make sure that we're driving that performance going forward. And so as we go into the second half of the year, we'll probably be in that low single-digit kind of range in terms of overall growth. Your specific question on Fragrance Ingredients, I think that is the pressure point in the quarter, specifically in Q2 and will be for the back half of the year. And so 4 fragrance ingredients in the back half of the year, we expect it to be down at similar levels that we had in Q2, which was pretty meaningful. Now there's a story that's happening there that the more commodity elements of our portfolio are under the most pressure.

And part of that is absence of really, what I'd say, strong innovation absence of a specialty portfolio, which is a little bit different than kind of where we've been historically at IFF. And so really, the focus now as we go forward is how do we make reinvestments to bring molecules to market. to making sure we're driving that competitive difference. And so as we go through the second half of the year, that commodity portion will be pressured. The specialty ingredients portion, while small and growing, will continue to be the focus as we move into 2026.

Next question is from the line of Kristen Owen with Oppenheimer.

Just want to zoom out a bit. Erik, reflecting on the last year plus, it feels as the company has hit this inflection point in terms of the balance sheet. You're moving through the portfolio efforts but perhaps less obvious are some of the changes that you've made to the Board. So if we're just taking a 2- to 3-year outlook, help us understand what the Board refresh helps IFF to accomplish as you move into this next phase.

Well, thank you, Kristen. So first of all, what we want to do, our goal is to get IFF on the right track to be a world-class leader in innovation, percent, taste and Health & Biosciences. And to do that, we need the right leadership, executive leadership and the right board. And what I would say is we have both now at full strength. And the leadership team, we recently added, as you know, Leticia Calvez, to run Health & Biosciences a terrific leader, has biotech chemistry background that's ideal for health and Biosciences leading that forward. On the Board front, I would say we're also now at full strength. We -- Kevin O'Byrne became our Chairman, who's been a terrific partner to me and the management team and the rest of the Board to work with great retail experience.

We've also added MemmuCon, an ideal world-class R&D leader with great experience, not only in health but also in food R&D and Home & Personal Care. And he's already tremendously helping our R&D teams to make sure that we're driving the right pipelines in the right way. We also brought in Hess Mantas who is a digital AI systems expert. And as you know, we've got complicated systems, and we've got a need to drive AI. And so he's already helping our teams in those areas, which is tremendous. We've recently brought in Cindy Jamieson, who's got terrific CFO experience with a number of companies, helping Mike and his team make sure that we're doing the right things to have a streamlined, very efficient and effective finance team. Gina Drosos joined us with great Procter & Gamble background, great CEO experience.

And as you know, we have Don Willoughby on our Board from Clorox with great home and personal care experience. So we now have a Board that has world-class governance capability, but also market experience and innovation experience to help us drive the company forward. So I feel really good about our executive team and our Board.

Next question is from the line of John Roberts with Mizuho.

Health & Biosciences is pretty diversified. I think you called out animal feed and food at the stronger end, and it sounds like health is going to be at the lower end. Maybe could you give us some quantification for how high the good businesses are performing and how low some of the declines are that you're expecting?

Sure, John. So first of all, food Biosciences and Home and Personal Care are performing very well. And I see them continuing to perform well. Just for example, in our Home and Personal Care, in addition to the strength we have in enzymes, really good capabilities there. We also commercialized our first application with DEB, our design enzymatic biomaterials with a leading home and personal care company, CPG company. And we see lots of opportunity there, but it was nice after many, many years of development to see the first application commercialized. So very good strength in both of those. Our Animal Nutrition business, we're very strong there.

What I would say is the market's slowing down a bit, but we continue to perform well versus the market. The real challenging area is health and we're hearing from our customers that in the second half, they're seeing slowdown and so what we're doing there is, as we talked about last year, continuing to invest more aggressively and really excited about our R&D pipeline that will start to play out in 2016 and come to full strength in 207. Leticia is also strengthening our commercial capabilities in health. So we will see a slow second half in our health business, a very important business but we'll see it start to come back in '26 and I would say, get to full strength in '27.

The next question is from the line of Lisa DeNeve from Morgan Stanley.

I have one question and one small follow-up on the previous question actually. So my first question is, can you outline what drove the strength in the second quarter for [indiscernible] in particular? And also how you see the midterm growth prospects for the subsegment especially in the light of potential regulatory changes under the U.S. administration. That's my first question. And then a small follow-up. If I recall, your HMB health business was soft to actually negative in the fourth quarter of last year. So could you just remind me how it traded last year because I'm a bit confused of why it would be negative in the second half, especially the fourth quarter when it was already weak in the fourth quarter of last year.

I'll start with the taste question. As is delivering solid growth, and I'm very glad that we separated Nourish into taste and food ingredients because it enables [indiscernible], our state leader and his team to really focus on what it takes to continue to win and taste. And what I would say is we now have 7 quarters in a row of performing with or ahead of the market in taste. And I see us continuing to perform strongly versus the market. Now the market is slowing down in the second half and taste. So we will have lower growth rates, but it will still be significant growth, particularly getting slower in the U.S. and in Asia, China and Southeast Asia, but still solid growth, and we've got a building commercial pipeline and we've got strength in our R&D pipeline. So very pleased with where we are in taste.

Yes. Maybe just, Lisa, on the H&B business on the second half of the year, I think the comparable when I look at the business was plus 12% in Q3, and I think it was plus 6% in Q4 so the comp is still pretty meaningful. When you double-click on the health side, it was a little bit softer in Q4 last year. But right now, I think what we're saying is we're flagging some weakness in Q3 specifically. And really because of the year ago comparison, I think it was mid-teens in terms of growth. And so part of it really is a comp issue. As we get into Q4, it will be less challenged. And then as we go into 2026, it's a full player. .

The next question is from the line of Salvator Tiano with BofA.

So although we haven't really seen much actual regulatory change coming from the Department of Health and Human Services and [indiscernible], there's certainly a lot of discussions request rumors. So what are you hearing from your customers regarding the response to any potential changes, including needs to reformulate?

Thank you, Sal. What we're hearing is, I would say, an even stronger desire for cleaner labors, cleaner labels for innovation to help reduce sugar, salt, fat, increased protein all the things that we are good at, and we're seeing the continued healthy reformulation to do those things. And I would say the Maha movement in the U.S. is helping that but we're also seeing that around the world. In Latin America, I've spent some time in Latin America in the last couple of months. And you've got these labeling where products are being labeled if they have high sugar, high salt or high fat, and the desire to help reformulate to get rid of those labels is very strong, and that's opening up opportunities for us. And we've had very good growth in Latin America. So I think that it's a global trend, certainly a little bit more push in the U.S. now, and it's very good for IFF.

The next question is from the line of Laurence Alexander with Jefferies.

So just to follow up on one of the earlier questions. Can you give a bit more granularity about what's happening sequentially in end market trends in Taste and Scent, your confidence on the end markets into 2026. And to the extent that you have investments in innovation, will those be showing up and contributing to those 2 businesses in 2026. You alluded in your comment to sort of tailwinds for health.

Yes. So thanks, Laurence. So in case, we do see a slowdown in -- particularly in the U.S., China and parts of Asia Latin America continues strong. Europe continues strong. What I would say there is we've got visibility in the second half to that happening, and that's what we're hearing from customers. We're pushing hard to bring more innovation and our commercial pipeline is strengthening. Our win rate is strong. But we're also pushing harder in developing markets. The leadership has spent more time in India and parts of Asia. And obviously, we're pushing hard in Latin America continued.

And in the Middle East, we're seeing opportunities there. But no doubt there will be a slowdown in the second half, continued growth but a slowdown, and we're hoping that, that reverses in '26 but we're not waiting for that. We're pushing hard on our innovation pipeline, both our commercial and the R&D capabilities to ensure that we still see solid growth in 2026. In scent, as Mike alluded to, the Fine Fragrance business is doing well and continues to -- has been delivering double-digit growth I think we've seen recent wins that give us confidence into the second half and into '26. We've got a very strong team there. [indiscernible] and her team, supported by Anna are very strong. And what I would say are very enthusiastic, very energized and are out making stuff happen.

In Consumer Fragrance, as Mike alluded to there, we had low single-digit growth in the first half. We see continued low single digit in the second half. driven by market conditions. But also, I would say that we got a little distracted in Consumer Fragrance last year and the year before. We've got the right leadership in place. We've got our commercial pipeline strengthening and I've got strong confidence that we'll see accelerated growth in 2026 in Consumer Fragrance. In Fragrance Ingredients, Again, as Mike alluded to, negative growth first half, continued negative growth in the second half as we put more emphasis on the specialties and grow specialties and naturals that we sell outside of our company to others.

We see that growing, but we see the commodities continuing to be depressed both on volume and price. That's a little less than half of that business. So that will be challenged. We see that flattening out in '26 and returning to growth in '27 as we get more capability, more capacity and capability and molecules in the specialty area and have deemphasized the commodities.

The next question is from the line of Kevin McCarthy with VRP.

So Erik, at a high level, you delivered some earnings upside in the first half, yet left the annual range is unchanged and now expect some growth to maybe moderate in the back half. So just wondering if you could parse that out. I hear you on the health trend and the comparison issue there. Just curious on the balance of the portfolio, if you net out the trends, do you think it's any better or worse than you would have previously expected. And I'd like to get a feel for whether or not you think there's an element of conservatism embedded in the current guide, particularly with currency having trended more favorably in recent months?

I think that our guidance is appropriate. I do not feel like it's overly conservative at all. I think there are 2 elements facing challenges facing us. One is market challenges. The other is things that we'll continue to clean up, fix, get on the right track. I feel really good about what we've done in taste. I feel really good about what we're doing in health and Biosciences in the food sciences, the food Biosciences, in the HPC and a number of other areas, fine fragrances, consumer fragrances, the things that we're doing across many of the businesses. Food ingredients transformation is going great. The areas that we have challenged right now are health.

That's a combination of the market but also our internal not being where we need to be, both on the innovation pipeline, which I said is coming. It's strengthening, and it will start to land next year and in 2027 will be strong. but we're also needing to strengthen our commercial capabilities in health. We're the leaders in this area, and we need to drive growth even when the markets are challenged. So that's one area. The other area is fragrance ingredients. We clearly had a great year last year when commodities and specialties were growing like crazy and the prices were strong. This year, the commodities, the volume has slowed, the prices are weak, and we're deemphasizing the commodities, recognizing that's not where we bring our strength over time. So we'll decrease the commodity piece of our portfolio and we'll strengthen the specialty piece.

So we're on it. We've got the right team focused and it will flatten out in '26 and it will start to grow again in '27. But those are our 2 biggest areas of drag that are dragging below what the market is doing in the second half.

The next question is from the line of Michael Sison with Wells Fargo.

Nice quarter. If you take out pharma from your first half EBITDA at somewhere around [ $1,050 ]. Your outlook for the second half implies mid-$900s at the midpoint. It's about 10% sequentially. Is that -- is that sort of a normal sequential decline? Or does that represent more incremental slowing in consumer demand? And how does that compare on a pro forma basis because I don't recall getting the data for second half '24 on a like-to-like basis?

Yes, Mike, thanks for the question. Yes, I don't have the numbers on a like-for-like basis, readily available. So happy to circle back. I think when you look at the reported numbers last year, you'll see that there is a step down second half to first half. Part of that is the seasonality of the business. If you remember, Q4 is the lowest margin quarter we have. And so last year, I think there was about 17%, which if you think the kind of where we are in the 20s now, you can see that step down. So that's a big portion of that. It really depends on where you anchored in, in terms of the guidance range.

If you look at it at the midpoint of the range is a small step down part of it again is the seasonality of it. Part of it is everything we talked about and around a little bit softening in terms of volume performance relative to where we were in the first half.

Our next question is from the line of Nicola Tang with BNP Paribas.

Question is a bit of a follow-up on an earlier one around food ingredients. Could you talk how integrated are the activities within food ingredients overall? And do you expect any standard costs from the Bunge deal? And I was wondering if you see any scope for portfolio cleanup elsewhere beyond food ingredients?

Thanks, Nicola. First of all, the biggest change was separating nourish into taste and food ingredients. And that took most of last year. We finished it at the beginning of this year, and then we've moved forward with food ingredients. And Andy and his team have been working and will continue to work now even more to stand up the food ingredients as a stand-alone business, which gives us more strategic flexibility there. That's working -- the answer on the Bunge sale, there are some stranded costs. We're already working to deal with those. And if we are to separate food ingredients, there will be stranded costs, and we're already working on how do we address those now versus waiting until later because it will be a good thing to do, whether we separate it or not.

So we're working hard on productivity, and that's part of it of what type of costs can you afford and should be allocated to a food ingredients business. And those that the food ingredients business don't want, how do we get those out of the system. What I would say is on the pharmaceutical business that we sold, we waited longer than we should have. So we learned from that to deal with the stranded costs upfront rather than after the fact.

The next question is from the line of Lauren Lieberman with Barclays.

So I want to talk a little bit about what you're seeing at a market level from kind of global multinational customers versus local and regional, any sort of difference in performance and even in their level of optimism or lack there of, maybe I should say, as we look towards the balance of the year and what the thing from a consumer standpoint?

Thanks, Lauren. I would say that the global companies are putting more emphasis on innovation, which is good. So we've got lots of innovation projects. What I would say is that they're getting challenged, particularly in the developing markets, whether it's Indonesia or Malaysia or Thailand or the Middle East by local players and smaller companies are coming up with some great innovations. I think athletic greens as an example or Fairlife as an example, now owned by Coke is driving great growth with their core power products and so we're seeing opportunity with both. What I would say is we are well positioned with the global players, and we're well distributed between global players, midsize players and small players but we are putting more emphasis on mid- and small-sized players in developing high-growth markets, and we hope to see better and better results from that.

We're doing it. But what I would say is some of our competitors are better positioned in some of our businesses in the developing markets with smaller customers, and that's an opportunity for us, and we're working on it.

Our next question is from the line of Jeff Zekauskas of JPMorgan.

In your commentary, you say that your currencies will be negative year-over-year. The euro is flat for the first half and maybe 8% or 9% stronger for the second. The Brazilian real is maybe 10% stronger, even the Chinese renminbi is a little bit stronger than it was last year. So was there a large hedging program that just didn't hit the current environment? Secondly, in food ingredients, is food ingredients a more capital-intensive part of IFF relative to the other businesses. And in rough terms, how much of food ingredients do you think you might eventually retain $1 billion in sales, something more or something less?

Yes. I'll take the first one. Jeff, great question on FX. Obviously, it's a big movement. We started out the year the euro was in that $105 range and kind of ramped to where it is. As you know, very, very well from covering IFF, it is a big [indiscernible] outside the U.S. It is our largest exposure. So that has been a tailwind. The reality is when you look at the [indiscernible] a comparable year-over-year basis, there are some emerging market currencies that are a headwind. And so you highlighted 2, but there's other ones that are negating some of the benefits that you would think. And so on the top line perspective, I think we said it's about 1% of a drag on a full year perspective.

You see that through the first half. And that will actually look to be a little bit more positive in the second half of the year. So to your point, it's getting better from here at this point in time. But really, the offset is going to be the emerging market currencies. There's no hedging program in place today. So there's nothing to flag from that perspective. It's truly the fully fungible aspects year-to-year delta in FX. So that's maybe part one. Erik, do you want to take [indiscernible]

Sure. So Food Ingredients is more capital intensive than the other businesses. Although Health & Biosciences has capital needs. What I would say is the biggest capital exposure we had was the business that we just sold to Bunge, which they know how to handle the capital in those commodity businesses better than we do. So I think that was a helpful move and there's some plants that we need to upgrade and do some things too that we have to proceed with. But as I look at the Food Ingredients business, it is still very different than taste, scent and health and Biosciences. There are leverage points. There are collaboration opportunities between food ingredients and taste and health and Biosciences, which we do today, and I foresee in any strategic change.

We would continue to have collaboration between food ingredients, wherever it ends up in those businesses within IFF but I don't see carving up food ingredients significantly from where it is today. I think it's an entity, it makes sense. I think it's an opportunity for a strategic player to add or a private equity firm to enhance the business by investing more in it. It's a great substrate to add other products to and enhance the business. So I think there's lots of options there, but I don't see it as being carved up significantly. I see it as a stand-alone business that we have various options with -- but whatever we do, I see there's still going to be collaboration between our Taste business, Health & Biosciences and food ingredients.

Our next question is from the line of Chris Parkinson with Wolfe Research.

Can you just hit a little bit more on probiotics markets? It seems like there's been some inconsistencies not only in the market, but also geographic and also some of your peer commentary. So it would be particularly helpful if we could just get your stance on where you are today and where you think the market is generally heading into 2026?

Thanks, Chris. First of all, I think it's a great business to be in. And we've got a great position today. We've been the historical builders of the market. It's an important area of health for humans. There are some opportunities in pets and we're well positioned. What I think we had lost the edge in was we had stopped really pushing hard on R&D innovation for the future to keep getting better probiotic strains and growing in adjacent areas. We started doing that early last year, increasing that R&D spend and increasing the focus [indiscernible] has joined us and is a great knowledge base of the health markets and is helping guide that and direct that research with our team with Casper, Roman and his team.

And so with that, we've been able to strengthen our pipeline that again starts to come out in '26 and goes to full strength in '27. We also -- as we have done that, have not pushed hard enough. We've got great customers that are doing really great things, but we haven't pushed hard enough at expanding what we do with our current customers and driving for new customers. And that's where Leticia has come in and is working with the team to strengthen our commercial capabilities. So overall, the market is growing. I think it's going to continue to grow. I think that it's a great area. In a world of GLP-1s, for example, there's even more opportunities that I see that we see, and we're going to access those.

We've got a tough second half challenge ahead of us with our current customers and their situation, but we're going to make sure that we do the right things to strengthen for '26 and '27 and beyond. And I see in this business really tremendous opportunities if we get some of these really exciting pipeline products out there with the right customers driving the growth opportunities.

There are no further questions registered at this time. I would now like to pass the call back over to Erik for any closing remarks.

Thank you. So I've now been in IFF for 1.5 years. And while I'm pleased with our progress on results, I'm really not satisfied. And as we've been very clear, we see the second half is even more challenging. But I can tell you, I'm more convinced than ever that we are taking the right actions to address our challenges, which we've talked about in health, for example, in Fragrance Ingredients. But I also believe that we are doing the right things across our businesses. We keep strengthening our innovation and commercial pipelines in case fine fragrance and consumer fragrance and our enzyme businesses while also strengthening our productivity muscle.

And we are absolutely focused on delivering what we committed to deliver in the second half of '25 while we also make sure that we're strengthening for '26 and I really see us starting to continue to improve in '26 as we also figure out what we're doing with food ingredients. And then in '27 as the investments that we started to make last year in CapEx and enzymes as well as our R&D engines across the businesses will really start to impact in '26, but will really come to full strength in '27. That's when I see us really starting to perform but between now and then, we're going to be clear on what our goals are, what our expectations are, and we're going to do all we can to do what we say and keep strengthening IFF for the future. So thank you very much for your interest. And we appreciate and we'll now close the call.

Thank you. That concludes today's conference call. We appreciate your participation. We hope everyone have an amazing day, and you may now disconnect your lines.