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This year's Fortune 500 marks the 61st running of the list. Wal-Mart claims the top spot again. See who made the list.

Wal-Mart stayed on top as its sales crept closer to half-a-trillion dollars. Apple moved into the top five. And UnitedHealth Group continued its steady climb. 

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International Flavors &amp; Fragrances (IFF) is a chemicals manufacturer that creates flavors, fragrances, and specialty ingredients used in food, beverages, personal care, and pharmaceuticals. Tracing its roots back to 1889, when Josef Polak and Leopold Schwarz created Polak &amp; Schwarz, a producer of fruit flavors and oil essences, IFF now does business in 65 countries. Since breaking its Nourish group into two parts, the company operates through five segments: taste, food ingredients, health &amp; biosciences, scent, and pharma solutions.

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International Flavors & Fragrances (IFF): Company Profile, Stock Price, News, Rankings

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International Flavors & Fragrances

international flavors & fragrances

Good morning. At this time, I would like to welcome everyone to the IFF Fourth Quarter and Full Year twenty twenty four Earnings Conference Call. All participants will be in a listen only mode until the formal question and answer portion of the call. I would like now to introduce Michael Bender, Head of Investor Relations. You may begin, Michael.

Thank you. Good morning, good afternoon and good evening, everyone. Welcome to IFF's fourth quarter and full year twenty twenty four 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 the respective GAAP measures is set forth in the press release that we issued yesterday. With me on the call today is our CEO, Eric Fearwold and our CFO, Michael DeVoe. We will begin with prepared remarks and to take questions at the end. With that, I would now like to turn the call over to Eric.

Thanks, Mike, and hello, everyone. I'm excited to walk through our full year 2024 financial results and reflect on the progress we've made over the past year. I'll then turn the call over to Mike DeVoe, who will provide a more detailed look at our fourth quarter and our financial outlook for 2025. Then I'll come back to discuss our go forward priorities in 2025 to maintain our momentum and continue to drive long term profitable growth. We'll then open the call for questions.

Starting with Slide six, I'd like to recap the significant improvement and progress achieved by IFF over the past year supported by consistent execution across the businesses. One year ago, when I joined IFF, I found an exciting company that was not delivering on its full potential. With a new perspective on our priorities and a renewed focus on execution by our executive leadership team, we got back to basics in 2024. The renewed commitment to operational discipline by our global teams led to improved financial results, including strong growth in both revenue and profit. The transition to our end to end business led operating model, splitting Nourish into focused taste and food ingredients business units, and our new operating system have better connected us to customer end markets and increased our line of sight into customer dynamics.

These initiatives have driven greater accountability across the organization while enabling our global teams to be faster, more efficient and more responsive to the evolving needs of our customers. As part of our updated strategy, we have increased emphasis on biotechnology as an important differentiator and capability across our core business segments. This focus ensures that we are investing in the necessary resources to leverage this competitive advantage and serve our customers more effectively. Now alongside this effort, we also implemented a program to increase investments across research and development, commercial capabilities and CapEx focused on our high growth, high margin health and biosciences, taste and scent businesses to enhance our infrastructure and drive innovation at scale. We are also continuing to strengthen our talent with several key hires and internal promotions that solidify the next generation of IFF leadership.

I'm also pleased to share that our employee engagement levels improved significantly compared to 2023, demonstrating the success of our return to focus on bringing leading innovation to customers. Lastly, we announced the next phase in the evolution of our Board of Directors, appointing three new Board members with the backgrounds, expertise and proven track records to support management to fulfill our long term strategic vision and unlock greater value for our stakeholders. We are excited to welcome Cynthia Jamieson, Doctor. Mehmed Khan and Vincent Intriari to our Board. We also announced that Kevin O'Byrne will become our new Board Chair.

He will succeed our current Chair, Roger Ferguson, who decided not to stand for reelection at the twenty twenty five Annual Shareholder Meeting after fourteen years of distinguished service. I thank Roger for all his support and guidance and look forward to working with Kevin in his new role. Taken together, all these efforts focus on our people, customers, innovation and operational excellence form the foundation of our long term profitable growth approach. On Slide seven, we'll take a closer look at our financial results in 2024. In 2024, IFF delivered $11,500,000,000 in sales, representing 6% comparable currency neutral growth.

Our profitability also improved as IFF delivered over 2,200,000,000 in adjusted operating EBITDA, representing 16% comparable growth. Broad based volume improvement across our portfolio, strong execution by our commercial teams and the absence of destocking drove growth across all our businesses. At the beginning of 2024, we also adjusted our dividend policy to better support our deleveraging efforts and give us greater financial flexibility to invest in key growth areas across IFF. On the portfolio optimization front, we continue to progress toward completing the sale of Pharma Solutions, which we expect will occur in the first half of twenty twenty five. From a leverage standpoint, our net debt to credit adjusted EBITDA ended 2024 at 3.8 times, improving from 4.5 times at the end of twenty twenty three.

We continue to be committed to further deleveraging and the completed sale of Pharma Solutions will help achieve that goal. I'm very proud of our results and the growth we achieved in the past year and what has continued to be a dynamic market and geopolitical environment. Our businesses achieved solid financial performance and we've made very good progress delivering on our strategic and operational initiatives. While I'm pleased with the significant progress we've made over the last year, we still have a lot more work to do. In 2025, we plan to continue to strategically reinvest in R and D, commercial, capacity and technology as we aim to strengthen IFF and build a long term sustainable platform that will deliver strong value creation for all our stakeholders.

We are also focused on simplifying our business process and IT systems to improve efficiency and effectiveness. I want to also take a moment to thank our IFFers across the globe, whose passion and relentless focus have been the reason for the value we've created and the innovation we've achieved. And as I mentioned on the previous slide, developing and promoting strong internal talent is a priority. Mike DeVoe is the kind of leader we elevate and I would like to congratulate him on his appointment to IFF's Chief Financial Officer. Mike has been an integral part of IFF's global finance leadership over the last fifteen years.

He brings a deep understanding of the needs of our global finance operations and the value IFF delivers for the world's consumer product companies. I know Mike will continue to be an even more incredible asset to our team in this key role. I'll now pass it over to him to share a closer look at our fourth quarter results. Mike?

Thank you for the kind words, Eric, and hello, everyone. After more than fifteen years at IFF, it is an honor to join my first call as CFO, and I look forward to working closely with all of you in my new role. Moving to Slide eight, as Eric noted, our strong performance and execution through 2024 continued in the fourth quarter and drove solid results. IFF generated revenue of $2,700,000,000 in the fourth quarter, an increase of 6% on a comparable currency neutral basis, driven by broad based growth across all our businesses and led by mid single digit volume improvement. We continue to realize the benefits from our ongoing productivity initiatives, leading to the third consecutive quarter of margin expansion on a comparable basis.

Adjusted operating EBITDA totaled $471,000,000 in the quarter, a 5% increase on a comparable basis, and their comparable adjusted operating EBITDA margin expanded by roughly 30 basis points. This performance was led by volume growth and our ongoing productivity initiatives that were partly offset by increased incentive compensation expense and business reinvestment. On Slide nine, I'll provide a closer look at our performance by segment. In Nourish, sales were $1,400,000,000 a 4% increase year over year on a comparable currency neutral basis. Comparable adjusted operating EBITDA also increased by 4%.

This was led by the fourth consecutive quarter of double digit growth in flavors, a testament to that team's continued outperformance. In Functional Ingredients, mid single digit volume growth was mostly offset by our pricing actions. This was consistent with our previously announced price strategy for 2024. Double digit gains in home and personal care and grain processing alongside growth across nearly all our businesses resulted in another solid quarter for our Health and Biosciences segment. Sales came in at $553,000,000 a 6% year over year increase on a comparable currency neutral basis.

Comparable adjusted operating EBITDA decreased by 3% largely due to strong year ago comparable as well as business reinvestments that Eric mentioned earlier. In scent, broad based growth was led by double digit increase in fragrance ingredients and high single digit growth in fine fragrance. Net sales in the quarter totaled $579,000,000 up 7% year over year on a comparable currency neutral basis and we delivered adjusted operating EBITDA of $97,000,000 up 1% on a comparable basis as volume growth and productivity gains were partially offset by higher reinvestment. Finally, Pharma Solutions delivered another strong quarter achieving sales of $228,000,000 a 12% year over year increase on a comparable basis, while also recording excellent profitability growth of 81% to $47,000,000 Strong margin expansion was driven by volume and productivity gains in a favorable year ago comparable. Turning to Slide 10, cash flow from operations totaled $1,100,000,000 for the full year and CapEx totaled $463,000,000 or approximately 4% of sales.

Our free cash flow position for the full year totaled $6.00 $6,000,000 which is consistent to where we expected it to be at the beginning of the year. Year to date, we also distributed $514,000,000 in dividends to our shareholders. Our cash and cash equivalents finished at $471,000,000 at the end of the fourth quarter, including $2,000,000 in assets held for sale. Our gross debt at the year end was approximately $9,000,000,000 a decrease of more than $1,000,000,000 compared to the year ago period following the completion of our divestiture of the cosmetic ingredients business. Our trailing twelve month credit adjusted EBITDA totaled $2,200,000,000 in line with last quarter and our net debt to credit adjusted EBITDA improved to 3.8 times.

We remain committed to achieving our net debt to credit adjusted EBITDA target of below three times following the completion of our Pharma Solutions divestiture, which we expect to be complete in the first half of twenty twenty five. On Slide 11, I'd like to share our outlook for 2025. While the current operating environment remains dynamic, we are cautiously optimistic about the year ahead as we look to build on our recent momentum. Coming off the strong year we had in 2024, we believe our 2025 plan strikes the right balance as we're targeting strong year over year improvements on a currency neutral basis and investing for the future growth of our business. Please note that our full year guidance includes six months of Pharma Solutions with a divestiture assumed to close 06/30/2025.

For comparability purposes, we expect that divestitures will have approximately a five percentage point adverse impact to sales growth and approximately a six percentage point adverse impact to adjusted EBITDA growth in 2025. In the event that we can close the pharma transaction earlier, we will adjust our guidance accordingly and reflect the lower contribution of the business. For the full year 2025, we expect sales to be in the range of $10,600,000,000 to $10,900,000,000 representing comparable currency neutral growth of 1% to 4%. We believe that this will be driven by continued volume growth against a strong year ago comparable with increases across all our divisions led by H and B, Taste and Scent. It should be noted that we expect the 2025 operating environment to be more normalized relative to 2024, which did benefit from the absence of destocking.

Pricing is expected to be modestly favorable, inclusions of FX related pricing as raw material costs remain elevated and in some cases increasing year over year. On the bottom line, we expect to deliver full year 2025 adjusted operating EBITDA between $2,000,000,000 to $2,150,000,000 On a comparable currency neutral basis, this translates to 5% to 10% EBITDA growth, which will be driven by gross margin expansion as a result of volume leverage and strong COGS productivity. Following a year of strong margin expansion and double digit profitability growth in 2024, we will continue to reinvest in long term value creation opportunities while balancing our near term profitability objectives. What this means is that we will continue to drive strong productivity to mitigate general inflationary pressures and at the same time reinvest a large portion of our incentive compensation reset in R and D, innovation and commercial capabilities across our businesses, similar to the actions we've taken in the second half of twenty twenty four. We believe that by doing so, not only will we drive short term performance, we will further enhance our competitive positions and generate strong returns on these organic investments.

Based on foreign exchange rates, we expect foreign exchange will have approximately 4% full year adverse impact to sales growth and a 6% full year adverse impact to adjusted operating EBITDA growth. This is primarily driven by the strength of the euro where the current rate is down relative to the 109 average in 2024. In addition, there are several other emerging market currencies such as the Brazilian real and the Argentine peso, where we issued a modest devaluation versus the USD over the course of 2025. As previously communicated, we plan to increase our CapEx investments targeting approximately 6% of sales in 2025. Approximately half of this investment is maintenance CapEx, while the rest is split evenly between deferred investment catch up, specifically in food ingredients, growth investments such as capacity expansion in H and B, an India creative center and scent and a creative center in Mexico in both taste and scent as well as digital transformation specifically related to our SAP HANA upgrade.

We believe these investments will yield strong returns providing us with incremental growth and efficiency opportunities. As a reminder, we have resegmented the business into five divisions Taste, Food Ingredients, Scent, H and B and Pharma and have adjusted our corporate allocations starting in 2025. Prior to the first quarter of twenty twenty five earnings release, we plan to provide historical information for comparable purposes so that when we report first quarter earnings, you will have the appropriate baseline. Let me close by sharing that we are pleased with the strong progress and foundation we built in 2024. Our recent success gives us confidence in our outlook as we continue to execute our strategic and financial priorities.

With that, I'd like to turn the call back to Eric.

Thanks, Mike. Our outlook for the year reflects our confidence in our businesses and our ability to navigate macro uncertainties, while continuing to deliver for our customers. I want to turn to the priorities that will guide our strategy for 2025 and help us reach the goals we've outlined for the year. In 2025, our focus will continue to be on creating sustainable growth and returns on capital. We will continue to improve our businesses while also ensuring we have competitive cost, best in class support functions.

As we've discussed, this will require some investment. At the same time, we will continue to drive growth and returns by increasing our investment in R and D, value enhancing capital projects, and commercial actions to deliver profitable market share growth over time. We will also keep exploring ways for our teams to better innovate, providing greater visibility and transparency into our sales pipeline and formalizing our sales targets and expectations across teams. We will continue to deliver cost savings through productivity initiatives and improvements in execution and processes throughout our businesses as we strengthen our continuous improvement culture. In addition to completing our planned divestiture of Pharma Solutions in the first half of the year, we will continue our ongoing portfolio assessment including exploring appropriate opportunities to bolster our portfolio through value creating bolt on acquisitions.

But I can assure you, we will not do anything like another Frutarom. Importantly, we remain committed to consistently delivering solid financial results and meeting the goals we've outlined for 2025. Lastly, our people are the core of our success and we will continue to invest time in developing talent and strengthening employee engagement to drive greater innovation and productivity. This in turn will enable us to better serve our customers, enhancing customer satisfaction, which will help us capture new growth and market share over time. I am confident that these priorities with the collective efforts of our world class global teams will make it happen.

Now to close us out on Slide 13, our solid performance in 2024 speaks to the success of our reinvigorated strategy and our focus on operational execution. All of us at IFF are excited to build on this foundation to further strengthen the business and reinforce our market position in 2025. We are well on our way to unlocking our full potential and continuing to deliver innovative and sustainable solutions for our customers and communities all around the world. Thank you. And I'll now open up the call to your questions.

Thank you all. At this time, we will now begin the question and answer you. The first question is from the line of Kiersten Owen with Oppenheimer. You may proceed.

Hi, good morning. Thank you for taking the question. I wanted to ask if you can elaborate on the sources, wind versus underlying demand of your volume growth expected in 2025. Just for context, we're hearing from CAGNY many of the CPGs are saying that volume is getting harder to come by. So we're just trying to understand what's sustaining that volume growth expectation and any specific areas of relative strength that you

Sure. Thanks, Kristen. This is Eric. I'll take this question. So first of all, we're saying that for 2025, our volumes will be 1% to 4% growth, which if you recall in 2026, we had 6% growth, which about half of it was destocking.

So a normalized growth rate is in the range of 3%. We believe that our volume increases will be mainly in health and biosciences, Bents and Taste. And we see now that we have strong commercial pipelines in each of those businesses and a high win rate. And that means that we're winning more than our fair share in many cases. And that's really important and that's the drive.

Food Ingredients will be much lower volume increases, but we still see some volume increase there. But I think it's really important to step back and see what we're doing over the next three years, what our focus is. And I'll start by saying, I think we made really good progress in 2024, getting back to basics, getting the fundamentals in place. But over the next three years, we must keep driving to get to growth rates while we narrow the margin gap versus our best in class competition in each business. And we're going to do that by continuing to invest in R and D, commercial capabilities and capacity, particularly in Health and Biosciences, Scent and Taste businesses.

Those are three great businesses with high margins and we want to keep making sure that we're fully investing to be fully competitive with best in class competition. In our Food Ingredients business, we are investing selectively in areas like technical service and upgrading some of our facilities that badly need it. But at the same time, we're driving an aggressive productivity program across our food ingredients business. And then even across the entire company, we're driving strong productivity programs across each business unit and across the corporate functions to make sure that we're fully cost competitive, but also fully effective. And then as we do all that, we're also leveraging our uniquely strong biotech capabilities into our scent and flavors businesses and continuing to drive the other health and biosciences application areas.

So we have a great plan for the next three years. We're going to keep investing. We're going to keep delivering year by year, but we're going to keep investing so that in three years, we are very strong versus our best in class competition.

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

Yes. Hi, good morning. I wanted to ask two things if I could. First, just on the EBITDA bridge for 2025. I mean, understanding the pharma divestment and FX are negatives.

I guess, we thought that volume and the incentive comp resets could get you to about neutral. So there's obviously something else investments or price cost or otherwise, which is adding a negative variance to that bridge that we're not accounting for. So how do you build that bridge? And then secondly, just around seasonality and your expectations for 1Q versus the rest of the year EBITDA specifically? Thanks.

Great. Thanks, Josh. I'll take just one. In terms of the EBITDA bridge to the midpoint of our 2025 guidance, it's really around just two things. It's around volume growth and productivity.

So if you assume the midpoint of our guidance range, sales will grow 2.5% on a comparable base of 11,000,000,000 with an incremental margin of about 35%. That's yielding you around four to five points of EBITDA growth. The second piece of it is that we're really trying to target and drive productivity within the organization. And so you're getting another about 2% net productivity benefit, which is more than offsetting the inflationary piece. In terms of net pricing to infill costs, they're expected to be neutrality, so flat when you net them together.

And in terms of the incentive compensation reset, we have about $100,000,000 of a reset and we're fully or essentially offsetting that by reinvestment in the business. And so there's about a $30,000,000 carryover for 2024 and a $70,000,000 incremental investment in 2025. So we net the two together and that's to zero. In terms of the EBITDA cadence, again, if you take the midpoint, the first half of the year will be stronger in an absolute dollar basis because we're assuming that the pharma transaction will be completed at the end of Q2. Also just remember that Q2 is usually our seasonably strongest quarter.

So on an absolute dollar basis, EBITDA will be the highest in Q2 of twenty twenty five.

Thank you. The next question is from the line of Nicola Tang with BNP Paribas. You may proceed.

Hi, everyone. Thanks for taking the question.

I wanted to dig a little bit more into your comments around volume or I guess the currency neutral 1% to 4% expectation for the year. Would you be able to talk a little bit more about what you expect across the core divisions? Thanks.

Yes. Thank you, Nicola. So first of all, it's going to be primarily volume driven with modest pricing with some gives and takes in pricing across businesses and across geographies. But primarily, the volume growth will be driven by Health and Biosciences, Scent and Taste. Food Ingredients volume will be much more moderate with a focus on increasing margins in that business.

The next question is from the line of Emily Fusco with Deutsche Bank. You may proceed.

Hi, this is Emily Fusco on for Dave Begleiter with Deutsche Bank. I wanted to ask, what are your expectations for input inflation this year? And how should we expect net pricing to develop through the year? Thank you.

Thanks again for the question, Emily. Maybe just to start by saying that import cost from an IFRS standpoint remain at historical levels, historically high levels. In some parts of our business, we are seeing continued modest inflation, specifically in taste and scent, and this is really driven by natural ingredients. In food ingredients, there is a bit of deflation that the team is working with customers on. And on an H and B perspective, it's generally flat.

And so net to net on a consolidated basis, we expect our input cost baskets to be flat to up slightly. In all instances, we will continue to work and collaborate with our customers to make sure we have the opportunities to mitigate. This includes reformulations, but also price discussions as well. In terms of pricing contribution over the course of 2025, we expect pricing to be relatively consistent over each of the four quarters as we go forward.

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

Hi, good morning. This is Eric Zhang on for Patrick. You mentioned last quarter about getting functional ingredients to 15% plus margins in the coming years. Are you on track for this margin expansion given the pricing actions? And what are the cost and productivity initiatives, savings underpinning this growth?

Thanks, Eric. We are on track towards this target and we made very good progress. If you recall in 2023, we talked about high single digit EBITDA margins in Food Ingredients. In 2024, we achieved solid low double digits margins EBITDA margins. And I would say under the new leadership of Andy Mueller with a strong team, we are confident in our plans to get to the mid teens in the next few years.

And we're doing that with a combination of better serving customers, so growing our business with attractive margins and driving aggressive productivity plans. Both are making progress. Andy has a strong background in this business and is helping the team to further strengthen those plans and the execution of those plans. So we are on track.

Thank you. The next question is from the line of Lisa D. Leves with Morgan Stanley. You may proceed.

Hi. Thank you for taking my question. I have a question for free

flow. Can you please give some details and granularity on how you expect free cash flow to play out for this year, especially concerning the networking capital movements and CapEx spend that's required? And also more in the light of the limited leveraging we've seen in the second half of this year, which clearly will improve First Pharma, but just the underlying movements would be helpful. And a small second question I'm just going to slide in. I mean, you've now been with the company as a CEO for over a year.

I mean, is there any intention to set new midterm targets given you keep referring in your presentation towards the next three years were driving improvement? So are you willing to set any financial targets against that? Thank you.

Thank you, Lisa. Maybe Eric, I'll start on the first one.

to you. In terms of the full year for 2025, we expect free cash flow to be about $500,000,000 Note that this does include a significant impact of taxes related to the pharma divestiture. So that's about $350,000,000 is our estimate at this point in time. If you adjust for that, our free cash flow will be about $850,000,000 which is kind of consistent to the last couple of years, but more importantly, an improvement versus where we finished 2024. In terms of networking capital, we are targeting a slight inflow versus an outflow in 2024.

And this is really driven by the work that we're doing around payables and selective strategic inventory reductions. As we stated on the call, we expect CapEx to be about 6% of sales, and this is really around increasing investments to catch up on some deferred spend. Eric mentioned it moments ago, specifically in food ingredients. Also to make some growth investments, And so capacity expansion, new technologies in H and B, some commercial facing operations for taste and scent. And then lastly, really start to drive the migration of our digital transformation.

And So those are the biggest drivers from a CapEx piece of it going forward. And so maybe Eric, I'll turn it over to you for the second part of the question.

Yes. So in terms of long term targets, we'll come back later in the year with more clarity on that. But let me just say that I feel like we are a very strengthened company now versus a year ago. We've got absolute clarity on our organization model, our end to end business model. We've separated Nourish into taste and food ingredients, two very different businesses with different strategies.

We've got a strong team, a clear flat five year plan, a clear investment plan with both growth investment and driving productivity. So I am confident that we have the right direction. Now we need to execute very well. And I think we did that in 2024. Now we need to do it in 2025.

And you'll hear more later in the year about our longer term aspirations.

Thank you. The next question is from the line of Steve Byrne with Bank of America. You may proceed.

Yes. Thank you. I'm curious, how would you characterize the potential impact on your businesses or perhaps some regulatory approvals from RFK, now run-in HHS and the staph cuts at FDA, any near term impacts from that? And then Eric, you mentioned new investments in biotechnology and R and D. I assume that that could include the use of gene editing for natural product expression levels, etcetera.

So first of all, thank you, Steve. We don't see any of our products as targets. In fact, what we do see is that many of our customers may reformulate products to have cleaner labels, which by the way plays into our strengths. And we've been making very good progress with customers that are working on cleaner labels, which has been a great growth opportunity for us already, and we see that as a continued opportunity going forward.

In terms of biotech R and D, I think there's lots of opportunities in many areas and you'll be hearing more about that at CAGNY. We're going to talk specifically about our biotech platform and we see that as having opportunities in scent, taste, but also in the current areas that we're playing in and other areas with our DEB design enzymatic biomaterials, which plays right into the heart of what the world wants, consumers want, our customers want, the world wants in biodegradable materials that are sustainable and sustainably grown, sustainably produced. So I see this as a bit of uncertainty about what will happen when, but in the general direction, I see it as significantly more opportunity than risk.

Thank you. The next question is from the line of John Roberts with Mizuho. You may proceed.

Thanks and first congrats Michael. Back to raw materials, how much of IFF's raw material spend is potentially exposed to tariffs here? And should we only be thinking about imported materials into The U. S? Or do you worry about something reciprocal, so that it's more than just a U.

Hey, thanks, John. Appreciate that very much. In terms of the tariff situation, it's ever evolving. It changes on a constant basis. When we assess the various situations or potential situations, we do not expect to have a material impact from any tariff change.

As you know, John, we have an expansive and global supply chain, which provides us with a lot of flexibility to adapt. So should things change, we're working with our customers to make sure we mitigate that to the fullest. We lived through this a couple of years ago in this administration's first term. And so similar to that approach we've taken now is that we're going to work with our customers on mitigation strategies and including price surcharges as appropriate, but that will become a secondary methodology to it. The focus is really seeing what we can do on supply chain to mitigate a lot of our exposure.

Again, immaterial nature, more to come as things develop and we'll keep you updated there.

The next question is from the line of Mike Sison with Wells Fargo. You may proceed.

Hey, good morning. Nice end of the year and congrats to you, Mike. Eric, with the year under year about, I understand you might want to wait a little bit, but where do you think IFS EBITDA should get over time? It's expected to be a pretty big number when you bought NNB, but with divestitures, maybe framework where it could be? And then and just maybe stepping back a little bit with NNB, do you think this is a good business for ISS longer term?

What are the risks? Because certainly it had a little bit it certainly had a tough time on the get go, but what are the risks to the business? And maybe just talk about where what parts of the business now fit really well with or have good synergies with the legacy IFF? Thank you.

Sure. Thanks, Mike, for the question. I see with our current portfolio over time us getting to the low 20s EBITDA margin with food ingredients being the most challenged and health and biosciences being the highest and scent and taste being very solid. And as I look at it, we I came to the company a year ago, there was a lot of complexity, a lot of performance challenges, a lot of companies had been brought together. So there was a lot to clean up and a lot to get the executive team together and clarify for the organization.

I think we've made very good progress. I think we've got a very solid H and B Health and Biosciences team and business, very strong scent and taste teams and businesses with very good very strong, very competitive capabilities. And so we just need to continue to strengthen those and move them along in the next three years. And I think they'll compete very favorably within that period with the leading benchmarks. Food Ingredients is still a turnaround situation.

Low single digit EBITDA margins in 2023, low double digit EBITDA margins in 2024. Andy Mueller and his team are absolutely focused on continuing that turnaround and getting those margins up significantly this year as another point of progress, and I'm confident in that team to make that happen. So I think that our focus right now is delivering 2025, but doing it in a way that we make smart investments that have good returns and get us increasingly competitive and deliver what we say we're going to deliver. And I think we're on good track to make that happen.

Thank you. The next question is from the line of Kevin McCarthy with Vertical Research Partners. You may proceed.

Hi. This is Matt Hetler on for Kevin McCarthy. Can you help us to understand why the FX headwind to EBITDA is 2% higher than the impact on sales? How do your margins on international business compare to U. S.

Hey, Matt. I'll take this one. Thank you for the question. In terms of the incremental impact on EBITDA relative to sales, entirely driven by our purchases. Our sales are based in local currency, while larger portion of our input costs are denominated in euro, U.

S. Dollar. And so essentially that's what's driving the kind of multiplier effect between sales piece of it and the EBITDA contribution. I think your second question was around margin structure globally internationally versus domestic operations. It's actually pretty agnostic and pretty constant.

The real differential comes when you compare the category exposures. And so just let me give you an example. In EV, you have the strongest margin profile just given the exposure to fine fragrance, while in India, you have a lower margin profile just because the portfolio is geared towards savory as an example. So really when you look at it on a kind of a like for like basis adjusting for the portfolio, you're pretty agnostic from the margin aspect of it. It really comes down to the category percentages within each one of the regions.

Thank you. The next question is from the line of Mark Ostrin from Stifel. You may proceed.

Yes, thanks. Good morning, everybody. Two questions for me. One, just could you talk about the growth rates between local, regional and private label customers compared to multinationals and maybe just give rough split of the business as it seems the former group seems to be growing faster and taking share away from the latter. And then Eric, you had talked about prioritizing best in class margins compared to sales growth.

You're obviously accelerating investment, I guess, with flexibility in early 'twenty five in terms of the wrap around reinvestment. Maybe talk a bit about how you manage the two and if you want to sit there and try to think about prioritizing one versus the other, how quickly can you get to the margins versus how quickly can you get to run rate sales growth that grows at least in line consistently with peers? Thank you.

Mike, you want to start and then I'll take the second half.

Sure. Thanks, Mark, for the question. When you look at the portfolio, the way I would categorize it is you basically have one third global customers, one third kind of mid sized and one third small and mobile customers, including some of the private label aspects. And so when you look at the dynamics across there on a global perspective, the growth is a little bit more muted than you see at some of the kind of regional, local, including private label customers. And so for us, a big part of the focus on the I'll give you an example on the taste strategy is really to prioritize private label and smaller customers as we go forward.

International Flavors & Fragrances Q4 2024 Earnings Call Transcript | Fortune

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International Flavors & Fragrances (IFF) Q4 2024 Earnings Call Transcript

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